6373&.

A STUDY OF THE C0-OPERATIVE BANKING SYSTEM

IN KERALA

Thesis Submitted to the

Cochin University of Science and Technology
For the Award of the Degree of
Doctor of Philosophy in Management
Under the Faculty of Social Sciences

539

K. KRISHNAN NAMPOOTHIRI
Lecturer in Commerce
The Cochin College
COCHIN -'- 682 002

UNDER THE SUPERVISION or

Prof. P. N. RAIENDRA PRASAD

School of Management Studies

COCHIN UNIVERSITY OF SCIENCE AND TECHNOLOGY
COCHIN - 682 -022

January 1987
 Off 3 85°531 0
v_ L .g fl <%w.4¢63/ Phone: _ 85-5110 Res .

SCHOOL OF MANAGEMENT STUDIES

COCHIN UNIVERSITY OF
SCIENCE AND TECHNOLOGY
COCHIN - 682022

22. Janua:y.m1982.wI

5.3.3. T£..E..1.E.§.T.£

THIS IS TO CERTIFY THAT THE DISSERTATION ENTITLED

“A STUDY OF THE CO-OPERATIVE BANKING SYSTEM IN KERALA”
IS A RECORD OF RESEARCH WORK DQIE BY SRI . K. KRISHNAN
NAMPOOTHIRI, A PART-TIME STUDENT OF DOCT%. OF PHILOSOPHY
IN THE SCHOOL OF MANAGEMENT STUDIES, COCHIN UNIVERSITY
OF SCIENCE AND TECHNOLOGY DURING THE PERI® OF HIS STUDY.

THE DISSERTATION IS THE OUTCCME OF HIS WIGINAL

WORK AND HAS NOT FORMED THE BASIS FOR THE AWARDOI-‘ ANY

DEGREE, DIPLOMA, ASSOCIATESHIP, FELLOHHHIP (32 OTHER

SIMILAR TITLE.

//in /\172~¥«M>”
Prof. PoN. RAJENDRA PRASAD,
RESEARCH GUIDE.
K. KRISHNAN NAMPOOTHIRI SCHOOL OF MANAGEMENT STUDIES.
RESEARCH SCHOLAR COCHIN UNIVERSITY OF SCIENCE
AND TECHNOLOGY
COCHIN - 682 022

22, January, 1987.

THIS IS TO CERTIFY THAT THE DISSERTATION ENTITLED

"A STUDY OT THE co-OPERATIVE BANKING SYSTEM IN KERALA"

IS A RECORD OF BONAFIDE RESEARCH EORK DONE BY ME AND

THAT IT HAS NOT PREVIOUSLY FORMED THE BASIS FOR THE

AWARD OF ANY DEGREE, DIPLOHA, ASSOCIATESHIR, FELLOWSHIP

OR OTHER SIMILAR TITLE.

. ‘xi
flax .,
K. KRISHNAN NAMPOOTHIRI.
 1-ijnuixj:-g-1.113
_Z>_.§_§NOWLEDGEMENTS

I wish to place on record my gratitude to

Prof. P.N. Rajendra Prasad, School of Management

Studies, Cochin University of Science and Technology,
for guiding me in my Ph.D. research and for offering
helpful hints and invaluable suggestions at every
stage of the research work - the influence of his
vast scholarship, benign personality and paternal­
affection being the chief contributing factor to the
successful completion of this work.

Prof. (Dr.) N. Parameswaran Nayar, School of Management

Studies, Cochin University of Science and Technology
for his invaluable suggestions and help.

Prof. R.V. Kilikar, Principal and Dr. N. Ajith Kumar,

Lecturer in Economics, The Cochin College, Cochin - 2,
who were constant sources of support and encouragement
all through.
The members of the teaching staff, The Cochin College,
Cochin - 2, who have been of great assistance. for
the completion of the project.
The President, The Secretary and members of the Board
of Directors, The Cochin College Staff Co—operative
Credit Society Ltd., for the prompt and timely
financial accommodation extended to m for the
completion of this research project.
The members of the Board of Directors, the Chief
Executives and members of the Staff of the respondent
banks who gave their unstinted co~operation in the
collection of data.
The authorities and Staff of the libraries in the
Cochin University of Science and Technology, University
of Calicut, University of Kerala, Centre for Development
Studies, Trivandrum and the Kerala State Planning
Board for granting me permission to use their facilities.
Office Staff of the School of Management Studies, Cochin
University of Science and Technology, especially
Shri. N. Babu, for their invaluable co-operation.

Mr. M. Dayanand and Staff of Eoto Stencils, Ernakulam

for their excellent secretarial assistance.
 CONTENT8

Pages
CHAPTER I INTRODUCTION 1 - 26
Introduction
Banking in India
Co-operative Banking in India
Primary Co—operative Banks
Primary Co-operative Banks in Kerala 10
Central Co-operative Banks 11
1.7 State Co-operative Bank 13

1.8 Need for the study 14

1.9 Objectives of the study 18

Hypothesis 20

Methodology 22

Scope and Limitations 23

Scheme of the Report 24

CHAPTER PRIMARY CO-OPERATIVE BANKS 27 -118

Origin and Development of Co­

operative Banks 27

Definition of Primary Co­

operative Banks 34

Features of Primary Co—operative

Banks 34
 ii
Pages
Primary Co-operative Banks in 37

Objectives of Primary Co-operative

Banks 40
Membership and share capital 42
Branches 48
Management and Staff 49
Dividends 67

Viability of Primary (Urban) Banks 68

Employment of funds, profit and
profitability 76

Area of operations 101

Other facilities in Primary

Co-operative Banks 104
Other findings 106
Conclusions and Recommendations 108

CHAPTER III CENTRAL CO—OPERATIVE BANKS 119 - 159

Introduction 119

Types of Central Banks 120

Central Co-operative Banks in
Kerala 121

Membership and Share Capital 123

Management and Staff '12?

Sources of Funds 134
Employment of Funds, Profit
and Profitability 139
Dividend 152
General Body Meetings 153
 iii
Pages
3.10 Conclusions and Recommendations 155

CHAPTER IV STATE CO—OPERATIVE BANK 160 - 201

Introduction 160
Origin and Growth 161
The Kerala State Co-operative
Bank 165
4.4 Objects 166
4.5 Membership and Share Capital 168
4.6 Management 170
4.7 Deposits and Other Resources 171
4.8 Principal State Partnership Fund 177
4.9 Employment of Funds 179‘
4.10 Profit and Profitability 187
4.11 Development and Other Activities 192
4. Conclusions and Recommendations 197

CHAPTER V CONCLUSIONS AND RECOMMENDATIONS 202 — 214

APPENDICES 215 - 237

SELECTED BIBLIOGRAPHY 238 — 244

 LIST OF TABLES

CHAPTER II
1 Classification of banks on the basis
of ‘A’ class and ‘C’ class paidsup
capital 47
Classification of banks based on
number of branches 48
Table showing the details of Directors 52

Details regarding educational back-ground

of Board of Directors S3

Table showing staff composition 59

Table showing the distribution of

banks on the basis of various classes
of staff 60
Table showing the classification of
banks on the basis of dividends declared 67

Table showing sources of funds, profits

and related ratios 81
Table showing details of funds and
profits 85
10 Table showing size and structure of
total.resources of Primary Banks in
the urban centres (viable units only) 91
11 Table showing ratio of loans outstanding
to total resources, operating profit
and ratio of operating profit to total 94
resources as on 30.6.1984 '
12 Table showing distribution of banks
on the basis of own funds, deposits,
borrowings and total resources as
on 30.6.1984 96
 13 Table showing classification of
banks on the basis of ratio of
operating profit to total, resources
for the year 1983-'84 99
14 Table showing position of funds as
on 30.6.1984 100

CHAPTER III
15 Table showing the classification of
banks on the basis of elected and
nominated members as on 30.6.1984 128
16 Details regarding the funds of
District C0—operative Banks 135
17 Table showing Central Tendencies
and Range of various components of
deposits 137
18 Table showing classification of banks
based on working capital 138
19 Table showing the shares of Short-Term,
Medium—Term and Long-Term loans 143
20 Table showing increase in interest
received and interest paid in 1983—‘84
compared to 1980—'81 146
21 Table showing the share of administra­
tion expenses and rate of increase in
1983—'84, base year 1980-'81 148
22 Percentage strength in General Body
Meetings 153

CHAPTER IV
23 Table showing growth of State
Co-operative Banks 164
24 Table showing Membership in State
Co—operative Bank 169
25 Table showing working capital in
State Co-operative Banks 172
 iii

26 Size and Structure of Deposits

27 Relative figures of deposits in
percentages
28 Table showing details of various
sources of funds 178
29 Table showing the position of the
Principal State Partnership Fund 180
30 Table showing ratio of loans outstanding
to working capital and total funds 181
31 Table showing details of borrowings 184
32 Table showing ratio of different types
of loans outstanding to total lending 186
33 Table showing progress in deposit
mobilisation 196
 LIST OF APPENDICES

Pages

List of Primary Co-operative Banks

List of District Co—operative Bank

Interview Schedule on Primary

Co-operative Banks 220

Interview Schedule on District

Co-operative Banks 228

Interview Schedule on Kerala State

Co—operative Bank 233
1.1.1 The role of banks in economic development
and prosperity of a nation does not need any emphasis.
It is specially so in developing countries like India.
Banks are not merely dealers in money, but also
manufacturers of money. They act as a link between
those who require finance and those who have finance in
the form.of savings, but are unable to make an effective
and productive use of it. Besides, they becoe manuw
facturers of money by virtue of their lending operations.
It is doubtful whether any bank is confined only to these
primary functions of accepting deposits and lending them.
Most of the banks are discharging a number of other
valuable agency and general utility services.
1.1.2 The role of banks in rural reconstruction,
elimination of poverty and illiteracy, establishment of
primary health centres and the like are considerable.
Banks provide financial help to the needy to persue their
higher education and later on to employ themselves in
some meaningful and useful activity. In India, banks
are the biggest employers, next only to the Railways and
the Postal Department and their potentiality for
employing educated unemployed is increasing with the
establishment of more and more branches, especially in
rural areas. consequent to nationalisation of banks,
the very concept of banking has undergone a sea change.
Security oriented lending has been replaced by purpose
oriented lending.

ganking in India :
1.2.1 Banking is of very ancient origin in India.
Evidences of borrowing and lending of money even during
ancient times have been found. Ancient Indian banking
resembled modern private banking to a great extent.
Like modern banking, ancient banking also operated on the
basic motives of profit making and security. It was
unorganised and it functioned on family lines without
any outside control. However, the fact remains that
ancient banking was not as purposive as modern private
banking.

1.2.2 The unification of currency by the East India

Company, beginning of European banking in India, the
establishment of “The General Bank of India" (1786),
establishment of presidency banks, enactment of the
‘Imperial Bank of India Act 1920', the Reserve Bank of
India Act 1934, The Banking Company's Act 1949 and
its subsequent amendments, nationalisation of banks etc.
are milestones in the development of the Banking
Industry in India.
1.2.3 At present, there are different types of banks
in India. An exhaustive classification of these banks
into various categories is not an easy task. On the
basis of functions, they can be divided into Comercial
Banks, Exchange Banks and Industrial Banks. Taking
ownership and management as the basis, they can be classi­
fied into Nationalised Banks, Joint Stock Banks and
Co-operative Banks. From the point of view of inclusion
or otherwise of these banks in Schedule (2) of the
Reserve Bank of India Act, they can again be classified
into scheduled or non-scheduled banks.

1.2.4 CE these banks enumerated above, co-operative

banks have their own salient and distinctive features.
They are set up with built-in-safeguards but are handicapped
by serious infirmities. At the very outset, it is
‘worthy of stating that they are different from other banks
and co-operative societies. Co—operative Banks in this
study refer to those banks which are registered under
the Co-operative Societies Act 1904 and are controlled
by the provisions of the Banking Regulation Act and
under the direct purview of Reserve Bank of India.
Only co-operative banks have this dual control.
However all co—operative societies do not coe under
the direct purview of Reserve Bank of India. (refer
2.2.1 and 2.3.1)

Co—operative Banking in India :

1.3.1 The concept of co-operative banking in India

was first introduced in the year 1904, when the first
Co—operative credit Societies Act was passed. The Act
gave a legal status to the credit societies. The first
urban co-operative credit society was registered at
Conjeevaram in Madras province. This was followed by
the registration of one society each in Dharwar District
and Bangalore city. But the operations of these societies
were confined only to lending. The Co~operative Credit
Societies Act. 1912. expanded the original idea and
made it possible for the establishment and organisation
of Central Co-operative Banks and unions of non-credit
societies as well.
1.3.2 The development of urban co—operative credit
societies did not receive much attention till 1915.
when the Maclagan Committee referred to the potentialities
for the organisation of such societies as a means for
training the upper and middle urban classes in ordinary
banking principlesl. The failure of several local joint
stock banks in the country at that time gave sufficient
impetus to the growth of urban co~operative credit
societies. It was then realised that urban credit
societies are the institutional agencies best suited for
collecting local savings and for offering relief to
those who were in the clutches of money lenders, by
providing them with financial accommodation.

1.3.3 The passing of the Bombay Co-operative Societies

Act. 1925, was another milestone in this respect. The
economic boom created by the second world war provided a
stimulus to the growth of such societies in India. They
grew not only in number, but also in size, diversifying
their activities considerably.
1.3.4 For the healthy promotion of Co-operative
Banking in India, the Reserve Bank of India, in 1952,
started inspection of State and Central Co-operative Banks
and Central Land Developmnt Banks. But this was on a
voluntary basis, where the institutions had agreed to
allow the Reserve Bank of India to inspect them. All

1 Hajela T.N. - Principles, Problems and Practice of

Co-operation - Shiva Lal Agarwala and Copany ­
Agra - 3, 1979 - page 220 & 461.
this tim, these institutions were registered and
administered under the Co-operative Societies Acts
in force in various states and remained outside the scope
of Banking Companies Act which came into force in
March 1949 because "co-operation" was a state subject.

1.3.5 However, the rapid growth in the operations of

Co-operative Banks made it necessary to bring them under
the purview of the Reserve Bank of India. In addition,
the statutory control by the Reserve Bank of India was
a pre—requisite for extending the benefits of Deposit
Insurance Scheme to the Cowoperative Banks. In view of
these considerations, the Banking Laws (applicable to
co-operative societies) Act, 1965, was enacted to extend
the operations of certain provisions of the Reserve
Bank of India Act. 1934, and the Banking Companies
Act, 1949, to Co-operative Banks. As a result, the
Banking Company's Act 1949 was renamed as the Banking
Regulation Act 1949. It came into force on 1st March 1966.
Thus the enactment of the Act has vested the Reserve
Bank of India with various statutory powers of control
and supervision over the Co~operative Banks. But, the
Registrar of Co-operative Societies of the state concerned
continues to be the authority to decide matters regarding
incorporation and management of these banks. Further
the provisions of the Act are in addition to the
existing rules and regulations of these banks. Thus
Co-operative Banks are required to comply with the
provisions of the Banking Regulation Act as well as
other laws applicable to them. But in respect of
matters specifically provided for in the Banking
Regulation Act, the provisions of the said Act will
prevail over the provisions of the Co-operative Societies
Act. However it is worthwhile to note that a lion's
share of the registered co-operative societies do not
come under the purview of Reserve Bank of India and the
Banking Regulation Act. (refer 1.4.i and ii)
1.3.6 The Co-operative Banking System in India
consists of 3 tiers in a state set up - State Apex Bank
or State Co-operative Bank, Central Banks or District
Co-operative Banks and Primary Co-operative Banks at
the basic level. At present, State Co-operative Banks
and Central Co-operative Banks are under the National
Bank for Agriculture and Rural Development (NABARD).
(refer 1.6.3)
1.3.7 It is to be noted that all primary co-operative
societies do not come under the Banking Regulation Act
and the direct purview of the Reserve Bank of India:
Co-operative Societies at the primary level can generally
be classified into two viz: Agricultural societies and
Non-agricultural Societies. The Non-agricultural
Societies, in turn can again be classified into two :
Non-agricultural Credit Societies and Non-agricultural,
Non-credit Societies. of these, only those Non­
agricultural Credit Societies which satisfy certain
prescribed conditions (see 1.4. i and 11) come under
the Banking Regulation Act. As on 30.6.1977, there were
t
1544 Co-operative Banks in India coming under)%%nking
Regulation Act. The break up is as followsz:
State Co-operative Banks = 28
Central Co-operative Banks = 354
Primary Co-operative Banks = 1162
Total = 1544
==-S'-"=

ggimary Co-operative Banks :

1.4.1 The term Primary Co-operative Banks, in this

study, as stated earlier, refer to those Co-oprative
Banks at the primary level which are governed by the
Banking Regulation Act and are under the direct purview
of the Reserve Bank of India.

2 Davar S.R. - Law and practice of Banking - Progressive

Corporation (P) Ltd. - Bombay ~ 1976 - pages15-17.
Definition and Features :

1.4.2 According to section 5 (c c C) of the Banking

Regulation Act, a Primary Co-operative Bank is given
the meaning assigned to it in the Reserve Bank of India
Act 1934. The Reserve Bank of India Act defines a
Primary Co-operative Bank as a "co-operative society
other than the primary agricultural credit society“.
(Section 2 (c iii) ). To have a clearer understanding
of the term, the following salient features of the
important sections of the Banking Regulation Act are
to be examined.

a) The primary object or principal business of a Primary

co-operative Bank is the transaction of banking business.
The forms of bsiness are as specified in section 6 of
the Banking Regulation Act.

b) According to section 8 of the Banking Regulation Act

it should not undertake trading activities.
C) As per section 11, the aggregate value of its paid
"up capital and reserves should not be less than onelakh
rupees. Here, value means real or exchangeable value.
and not nominal value as per books of accounts.

d) A Primary co-operative Bank cannot admit any other

co-operative society as a member.
 10

1.4.3 However, societies which are not governed

by the Banking Regulation Act, may also use the term
'Bank‘as part of their name. Eg. Co-operative Land
Mortgage Banks and Service Co—operat1ve Banks. Many
of them are undertaking trading activities side by side
with banking business and all of them are Agricultural
Credit Societies. Hence, such societies, though generally
called Co-operative Banks, are excluded from the scope
of this study.
Egimary Co-operative Banks in Kerala :

1.5.1 There are 55 Primary Co-operative Banks in Kerala

as on 30.4.1986, which are governed by the Banking
Regulation Act and are under the direct purview of Reserve
Bank of India (see appendix - 1). Of them 4 are Employee's
Co-operative Banks. Needless to say, they are expanding
with a useful framework. of banking facilities which have
their own place of importance in the banking structure
in this part of our country. All the Primary Co-operative
Banks in Kerala, except the four Employee's Co-operative
Banks, are called Urban Co-operative Banks. But a number
of them are located at semi-urban or rural areas. Teir
distribution is uneven and many urban areas do not
have Urban Co-operative Banks. At the same time, when
compared to Agricultural Credit Societies, Urban Banks
 11

have not progressed much. One of the reasons for this

is that a major part of village population is agricul­
turists and the village population out-weighs urban
population.

Central Co-operative Banks :

1.6.1 Central Co-operative Banks, otherwise called

District Co-operative Banks, lie at the middle in the
pyramidal structure of the Co-operative Banking System
in India. It is expected to act as a friend, philosopher
and guide to the registered primary co-operative societies
in the District. The main object of the District Co­
operative Banks is to arrange the supply of finance to
the constitutent member societies for distribution to
their members in different types of loans and to exercise
proper supervision and control over affiliated societies.
They collect deposits from members and non—members and do
banking business. All Primary Co-operative Societies
can get affiliated to the Central Co-operative Banks,
irrespective of whether they are governed by the Banking
Regulation Act or not.

1.6.2 Apart from financial assistance, control and

supervision, they conduct periodical conferences of the
representatives of the primary societies3. They provide

3 Development Role of State & Central Co-operative Banks ­

Reserve Bank of India (Agricultural Credit Department).
Bombay - Edn. 1973 - page — 18.
 12

the necessary guidelines on lending policy and procedures

of the Bank, on matters relating to the development of
primaries, resource mobilisation, recovery of dues etc.
A number of incentives like rebate on interest and
fertiliser distribution grant are provided towards
strengthening and stabilising the societies.
1.6.3 To discharge the rural credit functions which
were carried out by the Agricultural credit Department of
the Reserve Bank of India in relation to Co-operatives
(other than Primary Co-operative Banks), the Central Banks
and State Co-operative Banks are now brought under NABARD
(National Bank for Agricultural and Rural Development).
As a result, central Banks have played a vital role in
the field of institutional credit in rural India.
1.6.4 These "secondary credit institutions at the
District Level‘ not only bring about an equalisation of
credit requirements of their co-operatives, but most
of them, are closely associating themselves with the
I.R.D.P./D.R.D.P. Programmes of the Agricultural
Department. In the field of Industrial Finance,
their contribution is highly commendable.

4 Hagan K.S. & Blythe L.N. - Banking in India ­

Macdonald and Evans - Estover, plymouth. 1979 - P - 370
 13

1.6.5 As on 30th June 1986, there-were 13 District

Co-operative Banks in Kerala. Kasarcode District
does not have its own Central Bank. (see appendix II)
State Co-operative Bank :

1.7.1 The State Co-operative Bank or the State Apex

Bank is the top most bank in the co—operative banking
system in a state set up. It acts as the advisor and
supervisor of all co—operative banks and societies in
the state. Besides the usual banking business, it issues
necessary directions and guidelines to the Central Banks
and tries to bring about a uniformity in the activities
of co-operative societies in the state.
1.7.2 As the leader of the co-operative credit
structure in the state, it has to accept the responsibility
to identify weaktaentral Co-operative Banks and draw
programmes of rehabilitation or revitalisation for them.
‘The State Co-operative Banks should also concern themselves
with the re-organisation and revitalisation of primary
agricultural credit societies in different regions of
their area of operation. In fact there is already, a
programme for.the rehabilitation and revitalisation of
central co-operative banks, including the central sector
plan schem"5.

5 “Developmental Role of State & Central co-op. Banks" ­

Reserve Bank of India (Agricultural Credit Department),
Bombay - Edn. 1973-page ~ 18.
 14

1.7.3 Apart from these special functions, the

State Co-operative Banks are in close and constant touch
with Central Co-operative Banks through periodical
conferences, seminars etc. “It is also one of the basic
duties of the State Co-operative Banks to ensure that
the defects and weaknesses pointed out by the Reserve
Bank of India, in its inspection reports on central
co-operative banks and urban co-operative banks are
remedied by them and that suggestions for development are
carried out by these banks"6.

1.7.4 For Kerala, the State Co-operative Bank is

"The Kerala State Co-operative Bank Ltd”. Its Head office
is at M.G. Road, Trivandrum, with Regional office at
Ernakulam, Calicut and Trivandrum and has eleven branches.
Membership is restricted to District/Central Co-operative
Banks in Kerala and the Government of Kerala.

Need for the Study 2

1.8.1 when compared to other firms in the banking

industry. co-operative banks have a number of distinctive
features like dual control, open membership, democratic
management etc. Again, from the point of view of the
Banking Regulation Act, there were only 51 Primary
Co-operative Banks in Kerala as on 30.6.1984, 48 of them

6 ibid
 15

being urban banks. "The Reserve Bank of India has now

apparently come to the conclusion that, with the growth
of branches to over 50,000 and each branch on an average
serving a population of 13,000 in urban areas and 16,000
in rural and semi-urban areas, there is no need for banks
to grow in terms of number of branches, but, on the
other hand, they must enter a stage of conso1idation"7.
The Reserve Bank of India feels that even "the commercial
banks have to build a new image, as far as their
operational efficiency and customer service are concerned“8.
According to Mr. Goiporia, Chairman, Indian Banks Association,
"only about 20% of the resources raised by banks were
available for lending at commercial rates of interest“9.
1.8.2 If this is the situation in commercial banks,
still worse is the case with the co-operative banks. In
the predominantly agricultural economy of our country,
State co-operative Banks and.centra1 co-operative Banks
have been traditionally dealing mainly with the provision
of agricultural credit. The financial, functional and
organisational strengthening of co-operative institutions
was strongly emphasised by the ‘All India Rural Credit
Survey Committee‘ 195410.

7 ibid
8 ibid
9 ibid
10 ibid
 16

1.8.3 Regarding the operational aspects of

co-operative banks, especially at primary and central
levels, the situation is not pleasant. This is reflected
by slackness in internal checks, misappropriation of
funds by staff and management, under-utilisation or non­
utilisation of financial assistance from apex banks, etc.
In addition, 20% of Primary Co-operative Banks are
classified as weak and rehabilitation comittees are
constituted by the Registrar of Co-operative Societies
for closer supervision of their operations and for taking
steps to improve their functioning. The operational
efficiency of a bank is related to its internal organisational
system, quickness with which it transects its business,
the degree of service it provides to its constituents etc.
Thus to make a comment on the operational efficiency, a
study of these factors is necessary.
1.8.4 The developmental aspects include mobilisation
of resources, employment of funds, loan policies and
procedures and management and administration. The funds
of a bank can.be own funds, deposits and borrowings.
when compared to commercial banks, co-operative banks are
too backward in the mobilisation of resources. The
plea that branches of other banks exist in the area,
should not be an excuse for this. Realistic planning and
dynamic approach are highly necessary. Here, much depends
 17

on the efficiency of management. Equally important is

that the quality and variety of services rendered by
these banks should improve.

1.8.5 It is doubtless that there is a large quantitative

increase in co-operative credit. But when it is examined
in relative terms, the score is not so pretty.
1.8.6 In Kerala, there were 51 Primary Banks as on
30.6.1984, 13 Central Banks and one State Co—operative
Bank. Action has been taken to organise new urban
co-operative banks in 20 municipal towns. As on 30th June
1984 there were 3.25 lakhs members in the primary banks
with a total of m. 5,153.75 lakhs of deposits ie. average
number of 'A' class membership is 6,430 and average
deposit per bank is B. 101.05 lakhs. The total deposits
of 12 Central Co-operative Banks as on 30.6.1984 was
Rs. 19,173.75 lakhs. (Data collected by Survey)

1.8.7 lhe Central Banks are district level apex banks

for all the co-operative societies in the district concerned
and State Co—operative Bank is the apex bank for all
co-operative societies in the state concerned. Thus,
for co—operative banking system and co-operative credit
system the difference is only at the primary level.
1.8.8 Thus, to evaluate the working of Co-operative
Banking System in Kerala, the study should cover primary,
 18

central and state co-operative banks. Besides no study

has yet been conducted on the "Co-operative Banking
System in Kerala". Hence, it is proposed to conduct a
systematic study to evaluate the working of the co­
operative Banking System in Kerala.

Obiectives of the study :

1.9.1 Co-operative Banks, as stated earlier, have many

distinctive features. Open membership is one of the
fundamental principles or tenets of co-operative enterprise
and endeavour. The Reserve Bank has been pursuading the
urban co-operative banks and Registrars of co-operative
societies to follow the broad policy of open membership.
Similarly, the.District Banks are required to keep member­
ship open to every registered primary co-operative society
in its area, unless otherwise disqualified. How far these
banks have succeeded in carrying this out, is one of the
most important objectives of this study.
1.9.2 The membership of urban co-operative banks, at
present, consists of regular or share holder members and
nominal or associate members. The nominal members do not
subscribe to share capital, nor do they have the right of
voting. They are not entitled to dividend” and do not have
any liability in the case of the bank being wound up.
Enrolment of a good number of nominal members on a continuing
 19

basis and providing them credit facilities on equal

footing with the regular members amount to dilution of
the basic concept of nominal membership. Therefore
another objective of this study is to evaluate the effect
of nominal membership on the performance of these 9
organisations.

1.9.3 Inspite of the various measures adopted by

Reserve Bank of India under the Banking Regulations Act 1949
(As applicable to co-operative societies) and introduction
of statutory inspection at periodical intervals, it is
observed that some banks exhibit serious financial and
operational weaknesses. Those banks whose bad and doubtful
debts, other ‘bad’ assets and accumulated losses reach 25%
or more of the own funds, or whose overdues as at the end
of the co-operative year included 50% of the loans
outstanding are identified as weak and are brought under
the programme of rehabilitation. There were 26 primary
co-operative banks in 7 states which were identified as
weak, with reference to their financial position as on
30.6.197111. The number gradually increased over the
years and as on 30.6.1982 as many as 94 banks forming 7.4%
of the total number in the country in 14 states have been
classified as weak bankslz. In Kerala, as on 30.6.1984,

11 Report_of the Second meeting of the standing advisory

committee for Urban Co-operative Banks - Reserve Bank
of India (Urban Banks Department), Bombay - 1984 ­
page - 64.
12 ibid
 20

11 banks were classified as weak banks13. Hence, the

third objective of this study is to highlight the
problems and prospects of co-operative banks in general
and of weak banks in particular.

1.9.4 A fourth object of the study is to examine the

nature and extent of control and assistance exercised
by the State Co-operative Bank on Central Co-operative
Banks and Primary Banks and by the Central Co—operative
Banks on Primary Banks.

1.9.5 Last but not the least important objective is to

analyse the operational, managerial and financial efficiency
of co-operative banks - State, Central and Brimary and to
make recommendations to tone up their functioning and to
suggest solutions to remove the manifold difficulties which
they face.
gypotheses :

The study seeks to prove or disprove the following

hypotheses.

1.10.1 Co—operative Banking has great scope in the

banking industry. But it has not made much impact on the
banking system of the state.

13 ibid
 21

1.10.2 The Government and Reserve Bank of India.have

to give more effective attention to the vast potential
of this industry.
1.10.3 The nature of management and appointment and
administration of staff require serious attention.
1.10.4 The Primary (urban) Co-operative Banks should
be given a separate common cadre as Central Banks are
largely concerned with agricultural societies. The
existence of Central Co-operative Banks has not favoured
the growth of urban Co-operative Banks.

1.10.5 The underlining principle of open or universal

membership is yet unknown to many co-operative banks in
the state. This is a challenge to the principles of
co-operation and therefore more effective measures are
necessary on schemes of membership in co-operative banks.

1.10.6 The co-operative department in the state should

have a separate cell with specially trained staff for
co-operative banks coming under the purview of Reserve
Bank of India and the Banking Regulation Act.

1.10.7 The ranking of banks by the department, should

be based on performance and financial position and not on
working capital alone, as is being done now.
 22

Methodology :

1.11.1 No study has yet been conducted on the

Co-operative Banking System in Kerala. The Report of the
Madhavadas Committee (1978) covered Urban Co-operative
Banks alone and that also for all the banks in the country.
In this project, which is a census study, survey method
and interview method mrarelied upon. This is mainly
descriptive and analytical in character and tables have
been incorporated wherever necessary. The population
size as on 30.6.1984 was as follows :

Primary (urban) Go-operative Banks — 51

District Co-operative Banks - 12
State Co~operative1Bank — 1
The number was arrived at from the records of the Reserve
Bank of India, Kerala State Co-operative Bank, District
Co-operative Banks and Co-operative Department Offices.
For availability of data and reliability of conclusions
all the units are taken into consideration. Many visits
were made to each bank to interview the members of the
board of directors, the chief executive officer and the
staff members.

1.11.2 To study the working of the banks, reports andv

accounts from 1.7.1980 were collected and examined, Depth
 23

interviews were conducted at all banks, using pre­

constructed and pre-tested interview schedules.
Besides, the Bye-laws, Annual accounts and reports were
collected for 4 years.
1.11.3 The primary data collected were classified and
tabulated before making statistical and logical analysis.
1.11.4 For documentary evidence, sufficient footnotes
are given wherever secondary data are used.

Scope and Limitations of the Thesis :

1.12.1 The co-operative credit structure in a state

set up consists of 3 tiers — Primary Societies at the base,
District Co-operative Banks at the middle and State Co­
operative Bank at the top. But, some societies at the
primary level are governed by, in addition to Co-operative
Societies Act, the Banking Regulation Act. Thus they are
under dual control. In addition, they are working under
the direct purview of Reserve Bank of India. The scope
of this study is restricted to such Primary Societies,
District Co-operative Banks and State Co-operative Bank.

For the evaluation of the working of Co-operative

Banks, the board of directors and staff were interviewed
with the help of pre-constructed and pre-tested interview
schedules. However, the share holders and customers were
 24

not interviewed mainly because almost all respondents

were reluctant to provide copies of an exhaustive list
of share holders and non-share holder customers, for
the purpose of maintaining secrecy. This being an
individual work, it was found physically and financially
very difficult to extend the study so as to cover the
share holders and non-share holder customers. Limitations
of time were also responsible for restricting this study.
The period of study was restricted to 1980-'81
to 1983-'84 as the data relating to earlier periods were
firstly not available from all banks and secondly the
prior data was considered out of date for the purpose of
the study.

Scheme cg the Report :

1.13.1 The thesis is divided into five chapters and

the following are the chapter headings :
Chapter Introduction
1

Chapter Primary
2 Co-operative Banks
Chapter 3 District Co-operative Banks
Chapter 4 State Co-operative Bank
Chapter Conclusions
5 and Recommendations

1.13.2 The first chapter introduces the subject of the

study. It explains why the study was undertaken ‘and the‘
 25

objectives, hypotheses, methodology etc. of the study

are explained.

1.13.3 The second chapter traces the evolution and

history of primary (urban) co-operative banks in Kerala.
A careful attempt is made to explain the position of
these banks in Kerala against the all India background.
The respurces position, managerial and personnel aspects,
financial and operational features etc. of these banks
are examined in this chapter. The second chapter ends by
briefly reviewing the present problems and prospects of
the primary banks and suggesting measures for further
expansion and development.

1.13.4 Chapter III is concerned with the working of

District Co-operative Banks/Central Banks. In the
agricultural sector of the Indian economy, these banks have
been traditionally dealing mainly with the provision of
agricultural credit. The agricultural sector has been
accorded a high priority in development plans. The effici­
ency with which a Central Co—operative Bank carries on with
its day—to-day operations would indicate its ability to
shoulder greater responsibilities. It is the net effect of
various factors such as quality of administration, pattern of
its membership, nature of personnel administration, availabi~
lity and utilisation of funds etc. These factors are examined
 26

in this chapter, as also, the position and performance

of these banks in the pyramidal structure of co-operative
banks.

1.13.5 Chapter IV deals with the Kerala State

Co-operative Bank. Being the state level apex bank for
covoperative institutions, its activities like assistance
extended to and control exercised on District Co­
operative Banks and Primary Banks are examinedin addition
to tracing its history and development. Its contribution
to the co-operative movement in the state is also examined.
based on which suitable recommendations are made for
further development.

1.13.6 Chapter V summarises the conclusions and

recommendations of the study.
 27

QEEEIEE " I
PRIMARY CO-OPERATI VE BANKS

Qrigin & Development of Co-operative Banks :

2.1.1 England is considered to be the birth place

of the co-operative movement. The industrial revolution
and the resultant prosperity for some and misery for
others had a direct bearing on the origin of the co­
operative movement. Side by side with the industrial
prosperity, the gulf between the working class and the
factory owners also increased. The ‘Corn Laws‘ enacted by
the then British Government resulted in the sky-rocketing
of prices and adulteration of food stuff14. The working
classes protested against this and attempted to root out
the evils. Many movements took place - the important
ones were friendly societies, trade unions, and co­
operative movements.

2.1.2 If England is considered to be the birth place

of consumer Co-operatives, Germany is the cradle of Credit

14 Balan T.S. ~ Co-operation: Principles and Practice ­

published by the Author, Trichur - 1982 - P - 14
 28

co-operatives in the world. Mr. F.W. Raiffeisen and

Mr. Schulze Delitzsch were the two pioneers of the
co—operative credit movement in Germanyls. They tried
the self-help methods which brought them considerable
SLICCQSS o

2.1.3 Though the idea of co-operation was borrowed

from western countries, unlike in European countries,
co-operative movement in India was introduced as a state
policy. It was initiated and supported by all the state
governments. This feature is still dominant in the
movement. Again, the co-operative movement in India is
identified with co-operative credit movement16.

2.1.4 Due to the prolonged British rule, the economic

stability of Indian villages was totally damaged17. To
the British, India was a supplier of raw materials and a
consumer of their finished goods. This resulted in the
destruction of cottage and small scale industries. But
in the absence of any other alternative. agriculture
became the only resort of the Indian masses. This
increased the importance of land.

15 ibid page 25
16 ibid page 36
17 ibid page 36
 29

2.1.5 The majority of the agriculturists were

forced to depend on money lenders for the capital
required for the agriculture. In addition to the very
high rate of interest, the money lenders used unhealthy
and usurious practices against the illiterate peasants.
The saying that Indian farmers are born in debt, live
in debt and die in debt proved true and really apt.
The acute distress and misery led the farmers to riots.
In 1875. the government was forced to seek the help of
the military to solve the situation. The Deccan Agri­
cultural Relief Act (1879). the Agricultural Loans
Act (1884), Land Improvement Loans Act (1885) etc. were
some of the relief measures taken by the government.
Though the intention of these Acts was to provide necessary
funds to the agriculturists directly from the government,
it failed to render any commendable helpla. This gave
the necessary push to the co-operative movement to get
started.
2.1.6 Sir Frederick Nicholson's report (1895)
favoured the working of co-operative credit societies.
The Famine Comission Report (1901) also endorsed this

18 ibid page 37
 30

th
view. Meanwhile, Dupernex in U.P., Maclagan in/fiinjab
and Lyon in Bengal organised a few co-operative societies
on voluntary basislg.
2.1.7 In 1901 a committee was appointed under the
chairmanship of Sir Edward Law by the Government of
India to report on the possibilities of starting co­
operative societies in India. The committee recommended
in favour of the co-operative movement. As a result,
the first Co-operative Credit Societies Act 1904 was
passed. Thus the co-operative movement was formally
inaugurated in India in 1904.
2.1.8 This Act had certain serious drawbacks2O.
1. there was no provision for the organisation of
non-credit societies

2. it did not envisage Central Banks and other

federal societies
3. the basis of classification of societies into
urban and rural was un-scientific

19 ibid
20 ibid
 31

2.1.9 A new Co~operative Societies Act was passed

in 1912 by the Government of India. This Act provided
ample incentives for the alround development of the
co-operative movemnt. It contained provisions for
non-credit societies. Societies were classified into
limited and unlimited on the basis of liability. The
use of the term "co-operative" was restricted to co­
operative societies coming under this Act only. The
growth and development of the co-operative movement in
India is much indebted to the recommendations of the
Maclagan Comitteezl.

2.1.10 The states in India, at that time, were

enjoying legislative powers. The first Co-operative
Societies Act in the Cochin State was passed in the year
1913 and in the Travancore State in the year 1914. The
Montague - Chelmsford Act 1919 made co-operation a
provincial subject. The Bombay Province framed its
Co-operative Act in 1925 and the Madras Province in 1932.
At present each state in India has a separate Co-operative
Societies Act.

2.1.11 The past eight decades witnessed an alround

development in the movement. The number of co-operative

21 ibid page 38
 32

societies increased considerably with a proportionate

expansion in its volume and variety. At present,
the co-operative movement in our country has come to
be regardedj: third powerful sector, next to the private
sector and the public sector. It caters to the needs
of the people in different walks of life, providing
financial and other assistance. On the basis of the
kind of servicesrendered co-operative societies can be
broadly divided into credit societies and non-credit
societies. Both these types of societies are found in
the agricultural and non-agricultural sectors.
2.1.12 For the healthy promotion of co-operative
banking in India, in 1952 the Reserve Bank of India
started inspection of State and Central Co~operative
Banks and Central Land Development Banks. But this was
purely on a voluntary basis where the institutions had
agreed to allow the Reserve Bank of India to inspect them.
But these societies remained outside the scope of the
Banking Companies Act which came into force in March 1949,
because co-operation was a state subject.
2.1.13 However, the considerable increase in the
operation of co-operative banks made it necessary to bring
them under the purview of the Reserve Bank of India.
 33

In addition, the statutory control by the Reserve

Bank of India was a pre-requisite for extending the
benefits of Deposit Insurance Scheme to the Co-operative
Banks. In view of these considerations the Banking
Laws (applicable to the co—operative societies) Act 1965,
was enacted to extend the operation of certain provisions
of the Reserve Bank of India Act 1934 and the Banking
Companies Act 1949, to Co-operative Banks and the Banking
Companies Act 1949 was renamed as the Banking Regulation
Act 1949. It came into force on 1st March 1966. Thus
the co-operative banks are required not only to comply
with the provisions of the Banking Regulation Act but
also with other laws applicable to them except in respect
of matters specially provided for in the Act. However,
powers in regard to incorporation, management etc. of
these banks continue to vest with the Registrar of co­
operative societies of the state concerned.

2.1.14 In this thesis the term "Primary Co-operative

Banks" refers to those co-operative credit societies
which come under the said act and the direct purview
of the Reserve Bank of India.
 34

Definition of "Primary Co-operative Bank" :

2.2.1 An analysis of the salient features of the

important sections of the Act brings out the true
nature of these banks.

2.2.2 Section 5 (ccc) of the Banking Regulation Act

defines a Primary Co-operative Bank in the same way
as given in the Reserve Bank of India Act 1934. According
to section 2 (c iii) of the Reserve Bank of India
Act 1934 “a Primary Co—operative Bank means a co-operative
society other than a primary agricultural credit society,
1. the primary object or principal business of
which is the transaction of banking business;

2. the paid up share capital and reserves of which

are not less than one lakh rupees, and
3. the bye-laws of which do not permit admission
of any other co-operative society as a member".
Features of Primary Co—operative Banks :

2.3.1 The above definition makes it clear that a

Primary Cb-operative Bank should be a co-operative non­
agricultural credit society.
 35

It can carry out only those forms of businesses

which have been specified in Section 6 of the Banking
Regulation Act in addition to the business of banking.
As per Section 9, it is not allowed to hold any
immovable property except for its own use for a period
exceeding seven years from the date of acquisition of
the property or from 1st March 1966 which ever is later.
According to Section 11, it should have a minimum of
one lakh rupees by way of its paid up capital and
reserves, unless permitted in writing by the Reserve Bank
of India. A co-operative bank, as per Section 14 A,
shall not create a floating charge on the undertaking,
property or any part thereof. A co-operative bank is
required to maintain a cash reserve with itself or in
Current Account with the Reserve Bank of India or the
State Bank of india or the state Co—operative Bank of
the state concerned or with any other bank notified by
the Central Government in this behalf. These banks
notified under this section are the State Bank of India
and its associate state banks and the 20 nationalised
banks. However, for a Primary Co-operative Bank, the
cash reserve can be maintained with the Central Co­
operative Bank of the respective district. Under
Section 20, it shall not grant loans on the basis of
the security of its own shares. Unsecured loans to
 36

directors are subject to the directives issued by the

Reserve Bank of India from time to time. Section 21
of the Act empowers the Reserve Bank of India to frame
policies regarding loans and advances by co-operative
banks in general or by any co-operative bank in particular.
Section 22 makes it compulsory for a co-operative bank
to obtain a licence from the Reserve Bank of India to
carry on banking business. Banks which were in existence
on 1.3.1966 were required to apply to the Reserve Bank
of India for a licence within a period of 3 months and
were permitted to carry on business if licences were
granted or until they were informed that licences cannot
be granted to them. The State Co-operative Hanks and
Primary Co~operative Banks should obtain prior permission
from the Reserve Bank of India for opening new branches
in their areas of operation (Section 23). Like other
banks, every co-operative bank, as per section 29 & 30,
has to prepare its profit and loss account and balance
sheet in the prescribed form. A copy of the duly audited
annual accounts signed by the principal officer of the
bank and at least 3 directors, should be submitted to the
Reserve Bank of India. The balance sheet is also required
to be published in one of the local news papers. Normally
these provisions are to be complied with before 31st
December, each year.
 37

2.3.2 Section 35 & 35 A of the Banking Regulation

Act empowezs the Reserve Bank of India to inspect
co—operative banks. In the case of primary'3anks, the
Reserve Bank of India can authorise the state co­
operative Bank to carry out the inspection on behalf of
the Reserve Bank of India. The Reserve Bank of India can
recommended to the central Government to order a moratorium
in respect of a co-operative Bank (Section.4S). The
power to issue such a moratorium, however, vests with
the Central Government.

Primary Co-operative Banks in Kerala :

2.4.1 A separate act called "The Kerala Co-operative

Societies Act 1969" for co—operative societies in Kerala
came into force with effect from 15th May 1969. As on
1st July 1984 the total number of co-operative societies
in Kerala was 1302622 of which 7711 were under the
Go—operative Department and 5315 under other departments.
The societies under other departments were as follows2%

22 Co-operative Guide 1986 - Kerala state Co—operative

Inspectors and Auditors Association — Trivandrum - page ~ 6
23 ibid
 38

Handloom 484
Coir S06
Khadi 1589
Other industrial 1245
Dairy 1131
Fisheries 360
5315
II II II II

On the above date (1—7—1984) the number of Primary

Cowoperative Banks coming under Banking Regulation Act
was 51 of which 3 were Employee's Co-operative Banks.
Since then 4 more were established including one Employees
Co-operative Bank, but they have not been included
in the study. All the Primary Co-operative Banks other than
Employee's Co-operative Banks are called Urban Co­
operative Banks by virtue of their location and they are
covered by the definition given to primary co-operative
Banks in the_Banking Regulation Act.

Classification of Primary Co-operative Banks :

2.4.2 Under the existing classification based on

working capital, the co—operative banks coming under
the Banking Regulation Act are sub-classified into 4
classes as follows :
 39

Class I
Banks with working capital of E. 50 lakhs and
above.

Class II
Banks with working capital between B. 25 lakhs and
m. 50 lakhs.

Class III
Banks with working capital between E. 10 lakhs and
RS. lakhs:
Class IV

Banks with working capital below b. 10 lakhs.

In this study, the term ‘working capital‘ refers to

funds available for day to day working viz. paid-up­
capital + reserves and surpluses + borrowings + deposits ­
Investment in fixed assets.

2.4.3 According to the above classification, as on

30.6.1984, 32 banks were in class I, 10 in Class II,
6 in Class III and 3 in Class IV24.

24 Data collected in response to question No. 2 in the

interview schedule.
 40

2.4.4 16 Banks had obtained banking licence from

the Reserve Bank of Indiazs.

2.4.5 Based on Audit Classification for the year 1984,

19 banks each were in class A and class B, 8 banks in I
class C and one bank in class D. The audit classification
of 3 banks for the year was not available26. To one
bank the Audit Classification was not applicable for 1984
since it had not completed 2 years of existence.
Objectives of Primary (Urban) Co—operative Banks

2.5.1 The operation of Primary (Urban) Co-operative

Banks, when compared with commercial banks is not so
voluminous. But the co-operative banks form an important
segment of the banking system because they mobilise
deposits from a very large number of persons mostly
representing middle and low income groups. In a country
like India, where problems of poverty and unemployment
are massive, the governmental efforts alone cannot do
much. What is more required is self-help and mutual help.
This is the aim of the thrift and credit societies and

25 ibid
26 ibid
 41

Brimary Co-operative B-ranks.

2.5.2 The Indian Central Banking Enquiry Committee

(1931) observed that27 the duty of urban banks should be
to try to do to the small trader, the small merchant
and the middle class population what the commercial banks
are doing to the big trader and the big merchant. The
joint stock banks are not interested in developing the
business of small loans because the cost of advancing
and recovering them is highze. The Rural Banking
Enquiry Committee (1950) also commented on the role that
Primary (Urban) Co—operative Banks could play in providing
banking facilities.
2.5.3 To provide credit on reasonable terms to the
middle class is another objective of these banks. By
financing individual industrialists and artisans working
in urban and semi urban areas, they are expected to
make a significant contribution to industrial development.
2.5.4 Thus the basic objectives of Primary (Urban)
Co—operative Banks are promotion of thrift among members

27 Report of the Committee on Urban Co-operative

Banks }978 - Reserve Bank of India (Agricultural
Credit Department) Bombay — p — 26
28 ibid
 42

and non-members, provision of credit on reasonable

terms to persons of limited means, and provision of
banking services to customers. Thus a new dimension
has been added to the operation of these institutions in
recent years with their recognition as appropriate
agencies for financing cottage and small-scale industries
carried on by individuals as well as firms and joint
stock companieszg.

Membership and Share Capital :

2.6.1 One of the distinguishing features of co­

operative societies and banks is open membership. This
means that a co-operative bank should not be confined to
any particular community or caste. It should be open to
all eligible persons who wish to avail themselves of the
services of the bank and are prepared to abide by the
obligations of membership, provided they are residing or
are employed in the area of operations of the bank.
“The membership of urban banks consists, predominantly,
of individuals"3O.

29 ibid
30 ibid page 132
 43

2.6.2 The membership of the Primary (Urban) Co­

operative Banks is generally of 2 types - regular
members and associate or nominal members. In this report
the regular members are called 'A' class members and
nominal members are styled ‘C’ class members. In addition
to this, for state participation in share capital, some
banks have another class of shares. In this report such
shares are named ‘B’ class shares.

2.6.3 'A' class shareholders are the regular members

of the bank and are entitled to voting right and dividend.
They have a right to get, a copy of the audited accounts
and annual report of the bank and to attend and participate
in the general meetings and/or special general meetings
of the bank.

2.6.4 'B' class shares are meant for state participation

in share capital. This is desirable to strengthen the
equity base of urban banks. In Kerala 25 banks do not
have B class membership. The respondents to the schedule
in respect of these banks gave two reasons for this :
1. There is no positive provision in the Co­
operative Societies act for gevernment parti­
cipation in urban banks. However the banks
are precluded from issuing shares to the‘
government.
 44

2. Nomination of persons on the boards of

banks by the state government does not help
the bank in any way.

2.6.5 Persons who are not already members are

admitted as nominal or associate members for a specific
purpose, for a temporary period. The term specific
purpose covers the following31:

a) to stand surety for a borrowing member of the

bank.

b) to borrow occasionally for a temporary period

against certain tangible securities such as
gold ornaments, fixed deposit receipts,
insurance policies etc.
2.6.6 They are admitted as nominal members on payment
of an admission fee of a nominal amount. They do not
subscribe to the share capital nor do they have the
right of voting or right of participation in management.
Similarly they are not entitled to receive dividend.
"While providing for nominal membership or associate
membership, it was expected that it would constitute only

31 ibid page 409

 45

a small percentage of the total membership32.

2.6.7 In Kerala, as on 30th June 1984, the average

number of ‘A’ class members per bank was 6432 and ‘C’
class members per bank stood at 13048. 10 banks did
not have nominal membership. Thus for the remaining
which have ‘A’ class and ’C’ class members, the average
‘A’ class members per bank stood at 6898. For the four
years ending 30th June 1984, the ‘A’ class membership
increased by 29.32% in total whereas the increase in
those banks where there is only ‘A’ class and no ‘C’
class membership, A class members increased by 32.4%.
At the same time the increase in the ‘C’ class members for
the above period was 29.86%. On the other hand for the
41 banks where there are ‘A’ class and ‘C’ class members,
the increase in the ‘A’ class membership for the period
was 27.59% only.

2.6.8 The total ‘A’ class membership on 30.6.1984

was 2,95,856 and ‘C’ class membership stood at 4,43,615
excluding 6 banks from where data were not available.
For the 10 banks which did not have ‘C’ class membership,
there were 53,245 members as on 30.6.1984.

32 ibid page 133

 46

2.6.9 However, the underlying principle of open

membership is not satisfied by all the banks. In 5
banks, it was found that the demand for shares was not
met at all. The respondents at these banks expressed
that this was due to the scarcity of funds and also
due to the fear of the bank becoming unwieldy due to
excessive membership. In 7 banks, the application forms
were issued only on a written request and that also with
the consent of the board of directors. Besides, three
of these banks insist on getting the application
recommended by one of the directors. Twenty two respondents
expressed the View that the board of directors are anxious
to admit as members only persons recommended by them.
This, unfortunately, is an unhealthy tendency which has
to be stopped at any cost. For that, the public has to
be properly educated about the role and functions of the
co-operative banks. Similarly the Co-operative Department
and the government should be more vigilant in this
respect.

2.6.10 The following table gives the classification

of banks on the basis of 'A' class and ‘C’ class paid up
capital.
 47

Classification of banks on the basis of ‘A’ class and

'C‘ class paid-up Capital

I ‘I’ I I
' , Paid up share capital - 'A' class in
' _ - _ -l2khS rapees _ . . . . . . . _ - ­
. 0-5 ,5-10 .10-15 .15-20 .20-30,30-40 ,40—50 ,Total
“.5 r.- * ‘ ' r ' * r - - ~.* - - r - ~ r - - *.- - - r - * “
3 N11 '4 , 3 , 2 , Nil , 1 , 1 , Nil , 11
"E"I""':"""i""""l""'"""I""""l""""’f""""'I""'"'i"""""'
éal"""L"F""’l""""I"""’i"""‘l"""""I
10000 '6 7 I 4 I 1 1 I Nil Nil ‘ " ‘', '19
" ""
20000 ' . . . . . 1 .
-3 '1°°0°"'5 ' 4 ' 2 ' 1 ' 1 ' N'1 - N'l : 131 .
20 "J, ' I I ' ' I -i
E r’6O6 ‘ - r * " r - — -.- - - r ‘ * r - - “I” * ‘ r " ' “
E 30000 N11 :N11 : 1 . N11 ' N11 : N11 '.N1l : 1
DAO00O"'.'
L t I III II II' ' II ‘II
F‘ r - - “ — r ' ' r " " ‘I* ' " r s,‘ r * - -I" - ~ r " - ‘
E’
- r -f’1gg8g":1
* - r - " r -‘Nil
- "I"' 1“ '-N11
r - - 'r N11‘
‘ " -I"Nil
* *' 1r *' 3' “
0« 50000-' . . . . , .
713
«-1 50000 'N1lINil | 1 ' N11 ' N11: N11 I N11 ' 1
l"""' "I""l""'""I"""P""I"""""I""""l"""""’

‘U
3; f"”‘

":6 I
60000"l"'I"’
I I I
L1 :N11' :' N11
I I
' ‘ """l""“"I"
I
: N11 1 N11 ': 'N11

‘---‘--r---I----.---I---I----.-—-r--­
m Total 17 .14 , 11 . 2 , 3 , 2 , 1 , 50
' ' "' N11
" - ": 1""
"3; "=‘b°"e 'N11 ‘Nil - Nil : N11 1 N11‘ 1 : N11 : 1

‘"1jNjjjfijjjjn-jjjnnjjjjjjjjjz
.__.L......_L ....I....—..|_..._...|._._._L_._....L.............l...__l........—.

Source : Data Collected in response to question

no. 3(a) in the interview schedule.
 48

Branches :

2.7.1 In terms of section 23 of the Banking

Regulation Act 1949 (as applicable to Co-operative
Societies), no co~operative bank can open a branch without
obtaining permission and licence from the Reserve Bank
of India. This is because, the Reserve Bank intends to
bring about an orderly and healthy growth in the branch
expansion programme of Urban Panks.

2.7.2 In Kerala, 25 banks did not have branches as on

30.6.1984. The remaining banks had branches as follows :

II II II II II II 5I
==22:=:=z:':=='==:.::.-.:-:2‘.-:==,==-_:,==p==
No. of branches , 1 , 2 . 3 . 4 . 5 . 6 . 15
I I I I I I
’ * “ ' ‘ ' “ "".""""f""""g""""I"""""I““I""l"'“""
I32I9I.I7I,I6 I.I1 .II1 . 1I. 1
No. of banks
n. — - - — — - - — ---r - — - — ~ - ~ - - - - - - - — -—
source : Data collected in response to question
No. 5 in the interview schedule
 49

Management :

2.8.1 The need for competent and adeguate staff and

efficient management in the growth and prosperity of a
bank is of primary importance. In the wider sense, as
it is often used, the term management includes the
‘general body, board of directors, the Chief Executive
Officer and other managerial staff33. In the context
of the numerous_and varied activities of these banks and
the keen competition that they have to face from commercial
banks and private financiers, it has become necessary
for them to be well equipped with competent and adequate
management.

General Body :

2.8.2 A vigilant general body of members can

contribute much to the sound management of a bank.
Participation in general body meetings is a right and also
a responsibility of every member. In the democratic
form of management, directors are elected by the members
and hence the members have every right to see that the
elected representatives are functioning in the best
interests of the bank.

33 Report of the Committee on Urban Co-operative Banks ­

Reserve Bank of India (Agricultural Credit Department)
Bombay - 1979, page — 203
 50

2.8.3. But, however, the data collected in response

to Question No. 22 and 23 in the interview schedule,
give a disappointing picture in this regard. In three
banks, monetary incentives are offered to share holders
to attend the meetings and the average strength at the
meetings for the last four years is more than 70%. In
all other banks the average participation is less
than 15%. 12 respondents said that they had to use
personal influence to constitute the necessary quorum.
This is not a good indication. It is necessary that the
members of a bank are sufficiently imbued with the
importance of their participation in the bank's working.
It is seriously felt that members should be sufficiently
educated in this regard. For this, the bank can organise
meetings, seminars, group discussions etc. The Federation
or Association of Urban Banks can do much in this regard
by publishing suitable literature and periodicals. In
addition to this, suitable provisions should be incor­
porated in bye-laws of the Banks and Co—operative
Societies Act.
Board of Directors :

2.8.4 In a dynamic society like ours, banks also

should be dynamic to cater to the needs of the growing
population. The operations of co-operative banks, both
 51

in volume and nature have increased considerably. But

"the attitude of urban banks towards administrative
principles, procedures, systems and methods continues
to be not sufficiently responsive. The traditional
outlook about employment of minimum staff at minimum
cost still appears to prevail in many of the banks"34.
2.8.5 The board of directors should be able to
direct the functioning of the bank. They have to form
plans and policies specifically required for each
particular bank. They have to see that the funds of the
bank are most effectively utilised and that necessary
action is taken in accordance with the inspection and
audit reports. They must also ensure that the relationship
between staff and customers is smooth and healthy.

2.8.6 The number of directors vary from bank to

bank. In addition to the elected representatives, there
can be directors representing the state government if
the state government is contributing to the share capital
of these Primary Banks. There were 27 banks with
government nominees in the board as on 30.6.1984. Of
the remaining 24 banks, one bank did not have an elected

34 ibid page 378

 52

board on that date. The details in respect of another

bank were not available. Thus the details of 49 banks
in respect of board of directors are given below.

jjjijj

I
' 3 I
‘ I
15 '
I“"' . I’
Elected ' Government ' Total no. of ' Number of
representatives ' nominees ' dirs. ‘ banks
12 1
-------—r------r---*---r~*---­
” 11 ' 3 ' 14 ' 1

-3
.._...-_L--__--L-----L-L-_---­
11 ' 2 ' 13 ' 1
&Z1Z11ZIL111131L11III13L21IIZ1

9 ' 3 ' 12 ' 2

.__..___L---__-L----_-_L---_-­
9
11 '' 2 '
Nil 11
' 11 ' ' 5
....___-L-__---L--_--_-L_--_-­
1
._...._-L_--_--L__-----L---_-­
7 ' 2 ' 9 ' 13
__.__.--LL-____L_--_-_-L_--_-_
9 ' Nil ' 9 ' 7
7 ' 1 ' 8 ' 2
_...____L____-_L-_____-L_--_-_
____.._-L____--L__-_---L-----_
8S ‘' Nil ' 8 ' 2
2 ' 7 ' 2
_ . _ . _ . - - L - _ _ _ - - L _ - - _ - _ -‘L _ - - _ - _
._....-_L__----L-_-__--L__---_
7 ' Nil ' '7 ' 11
.____.--L------L_--_-_-L-----­

“ —‘p* S T' Nil ' 5 ' 1

_._._._-L___-_-L_----_-L_----­

0 t a 1 49
___.._-_L---_--L-------L----L­

Source : Data collected in response to question

number 7 in the interview schedule.
 53

2.8.7 In the light of views expressed by respondents

it is felt that the directors should have the basic
minimum qualification ie. to read, write and understand
things without the help of others. However there are no
provisions with regard to this either in the Co-operative
Societies Act or in the bye—laws of the banks. Many
Chief Executive Officers have stated that they find it
difficult to get along with the directors who do not have
sufficient educational background. Very often, the plans
and policies of the directors are meant for the immediate
satisfaction of customers belonging to their party or
group and are contradictory to the policies laid down by
the Department and the Reserve Bank of India­

2.8.8 as on 30th June 1984, 49 banks had a total of

440 directors of whom 35% did not possesseven S.S.L.C.
and another 35% were S.S.L.C. holders, 23% were graduates,
5% post graduates and 2% had S.s.L.C. with additional
qualifications. The absolute figures are as follows:

uuII
Below ' ' but w th S.S.L.C. , ost
“ " " ' ’ ' " " " " “ ' Undefi§radfiate§,' T _ " " — r ; “ " "
' ' qualifications ' '
S.S.L.C. ' S°S°L'C' ' and additional Graduates Graduates
154 ' 154 ' 7
-___--_---L._..._.--L--_-L--_­
’ 103 ' 22
:.-_-==:::E-_-..-:=-.:.=E:-.:=-:.=:::=.':-.:E====‘.=====
source : Data collected in response to question No. 8
in the interview schedule.
 54

2.8.9 Hence the Reserve Bank of India and the State

Government should see that a director has a prescribed
minimum qualification ie. the ability to read and write.
Again those contesting for directorship should have
completed at least 2 years as regular members35 and they
should have had an operating account with the bank atleast
for the same period. This is because only those having
continued association with the bank should be eligible to
seek election.

2.8.10 Besides, to improve the working of the bank, and

to ensure co-operation and co-ordination of directors,
there should be continuous programmes to develop themselves
into a competent administrative body“ ‘It can be in the
form of conducting workshops, seminars, periodical training,
conducting study tours to other banks etc., on a compulsory
basis. The State Co-operative Union and the National
Federation of Urban Banks can frame the necessary policies
for this.
Board Meetings :

2.8.11 The second part of the primary functions of a bank

ie. lending is done in a co-operative bank after obtaining
sanction from the board of directors, on individual
applications, except in the case of gold loans. For this,
35 ibid page 285
the members of the board have to meet promptly at
periodic intervals. Failure to do so may call for share
holder's dissatisfaction, which in turn, will have an
adverse effect on the progress of the bank. For the
four years ending 30 June 1984, only 40 banks could
conduct the board meetings in time. In all other cases
there were adjournments of board meetings due to lack
of quorum. This is not a healthy indication. The bye­
laws of the banks should contain necessary safeguards
in this regard. For example, the absence of a director
in two or three consecutive board meetings, should result
in the termination of his directorship.
2.8.12 "In the formation of policies, political aims
are given more importance in the banking industry to-day.
This is the reason for the problems faced by this sector.
If economic development is stressed more than political
aims, many of the problems can easily be solved"36. This
opinion of Justice U.L. Bhat is really apt in the case
of Co-operative Banking also. Of the total directors in
the primary Banks, 77% contested for directorship under
the banner of political parties. This is natural in
elections in a democratic set up. If the government was

36 Malayalamanorama daily dated 14.4.1986, Cochin

edition - page ~ 8 (translation)
 56

alert and resourceful, it would have sent specialists

or atleast persons with practical know-how in the banking
industry to the board as nominees. But noeof the
government nomineess as on 30.6.1984 possessed such
skill or knowledge. Besides 8 respondents expressed the
View that the political background of directors affected
the deposit mobilisation of the banks adversely.
Chief Executive Officer and Staff ;

2.8.13 The Chief Executive Officer is the connecting

link between the board of directors and the staff. The
success of a bank depends much on the competence of the
chief Executive. The finance management of a bank, in
accordance with the Act and the directions of the Reserve
Bank of India is the main task of the Chief Executive.
when the directors are handicapped for want of practical
knowledge in banking, it becomes the sole responsibility
of the Chief Executive to enlighten them. Delegation
of authority and division of work among the staff is
another important policy for the Chief Executive.

2.8.14 Every bank in Kerala has a full-time, paid,

Chief Executive though designated differently as Secretary,
General Manager, Manager etc. The power of appointment
 57

to this post is vested with the board of directors. The

appointment may be either by promotion from among the
staff or by direct recruitment. All the banks follow
the same procedure for direct appointment like adver­
tising the vacancy in the local newspaper, conducting
written test or interview or both. The minimum qualificae
tions, terms and conditions of appointment etc. are
contained in the C0-operative Societies Act.

2.8.15 Regarding the staffing pattern there was no

uniformity in the banks visited in connection with this
study. "Since Urban Banks are of different sizes and
of varying volumes of work and operations, it is not
practicable to suggest any uniform norm either in the
organisational set up or in the staffing pattern both at
the head office and the branches of Urban Banks"37. The
highest number of staff including Chief Executive Officer
was 102 and the lowest 8.

2.8.16 In this report the total staff are categorised

as follows :

a) Chief Executive Officer - usually designated as

Secretary or General Manager or Manager.

37 Report of the Committee on Urban Co-operative Banks ­

Reserve Bank of India, Bombay - Edn. 1978 p - 213
 58

b) Officers - consisting of Assistant Secretary/

Deputy General Manager/Assistant Manager,
Chief Accountant and Accountants.

C) Clerks - consisting of Senior Clerks, Junior

Clerks, Cashiers and Typists.

d) Sub-staff which includes Defedars, Attenders,

Peons and Sweepers.

e) Others - including watchmen, record keepers and

bill collectors, drivers, gold appraisers etc.,
whose appointments are on a full time basis.

2.8.17 Every Primary Co-operative Bank in Kerala has

a Chief Executive Officer. Excluding him, the numerical
relation of officers and clerical staff is shown in
Table 5 on page 59.

2.8.18 The numerical relationship between the Staff

including the Chief Executive Officer and Sub-staff in
the banks interviewed showed the following position and
is shown in Table 6 on page 60.

2.8.19 The minimum staff considered necessary by

the Committee on Urban Banks appointed by the Reserve Bank
of India headed by shri. K. Madhava Das was one Chief
Executive Officer, 2 officers in metropolitan cities and
 S9

T. A. B. L_ E. 5.

Table showing Staff Composition

Clerical Staff
;
f .1 e s .. 0 4|. 5 RJ 2 2 5
.a
bq4 . Orb
_W
.. um»
t . .1

.O. .f. .c. .I. _. on o _ .. . nu . . .3 _ rf-u L . .5 . .; A . .. r. .4.

.. 0 . __ .1. _.. _ 0.. F .. u L sO. .4. .. . _O_ .a. _.

NIL

I- ‘ I '- ’ I" ' ' II

'‘

U ’ ‘I

‘D­

U 1' U‘ D t l I ' ' III! .l' ' cl '

' I-‘ ' I ' I-‘ ‘I I ‘ " - '- ' ‘ I '

2 2
.. .1 . __ .. ._ _. _. .. _. .. _. .. J. .. __ ._ .. __ ._ u L- L .2 _ .. .. ._ _. ._ .. .. ..
13 ‘‘l.'''

W -fi ­
4..-_­

16
‘'56..

'‘'t'

Total

Source : Data collected in response to question No. 14

in the interview schedule.
 60

Sub- ' L T 1
l_ I _""""I ‘“r
staff r"*"“r _ I'§_4l
""" ‘"' "" "'_""""
I "r;;;;;“‘. °ta
I I I 'l I I
'0 10 .10 20 _2o 30 ‘re 0 '40 50 '5O(84) .
"'""l"""l""'"'o"""""'l""""'n""""'l""""""':"""""
0-5 ' 12 ' 14 ' ~ ' — ' — ' — . 26
I
5-10 'I7 'I7 ' I1 'I
—I
—--r——-.----.---.---—.---.------;---­
' - ' - . 15
I
I I
I
' -I' 1I' 2I' 1I' 2 ' - . 6
""""‘€'“""!""""""'u"“""’t'"""’o""""f"""":""""
1o~15
' - 1I—I' 1I' - 'I— ' 1 . 2
---.—--.--—--.---r---.---.-----:---­
15-20
3 _ls _aI _uI 1nI _ 1I __' ' 1
"""’l""“‘F"""’a""""l""""'u""""f""""""""“'
20_2I
"""""'f""i"""""t"""’f""""n"""'l"'""""":"""""
Tota ' 19 ' 22 ' 4 ' 2 ' 2 ' 1 . 50
_ _ _ L _ _ L _ _ _i_ . _ L _ _ _i_ , _ L _ _ _ -._ _ _ _
1.. 3 3: .1 & j 0:: j Ofi f uu— ~—n 1 no ya. can 1- 3 2- :1 3 fin Q. —- 20 Z 1 $1 1

Source : Data collected in response to question

number 14 in the interview schedule.

one officer in urban and semi—urban centres, 3 clerks

in metropolitan and urban centres and 2 in semi-urban
centres and 2 smystaff for each bank. This norm is
satisfied by all banks in Kerala except one in semi-urban
area in the matter of officers. Yet, many banks are
under~staffed. when compared to the above norms. At
present, the number of staff is fixed on the basis.of
 61

classification of banks on the basis of working capital.

All the respondents except two complained that the
vacancies resulting from the upgradation of banks from
the existing class to a higher class is pending for
approval by the department and this adversely affects the
functioning of the bank.

2.8.20 The procedure for recruitment of staff varies

from bank to bank. 18 banks follow the same procedure
i.e. advertising the vacancies in a local newspaper,
conducting written test through an independent outside
authority, conducting interview for those who come up
in the test and preparing and publishing a rank list.
27 banks do not prepare and publish a rank list including
waiting list. In 4 banks, only an interview is conducted
by the board of directors for the selection of staff.
In one bank both the test and interview are conducted
by the board.

2.8.21 The data collected in response to question

No. 6 (a) and (b) and question No. 19 (d) reveal that
14 banks give preference to local hands in the appoint­
ment of staff. As on 30.6.1984, 17 banks did not have
any employee from outside the area of operation of
the bank concerned. The data of one bank was not available.
 62

For the remaining 33 banks,19 banks have less than 5

employees fro outside the area of operation and
8 banks had more than 5 but less than 10. For the
other two banks the number of employees from outside
the jurisdiction was 15 and 20.
2.8.22 Today; co—operative banks have to compete
with commercial banks in many respects. Hence the
recruitment and training of staff requires serious
attention. Promotions are purely based on seniority and
no system of efficiency evaluation or merit rating is
found in any bank. No doubt, this will not improve
the quality of the staff. If the most efficient and
least efficient are allowed to occupy the same chair,
it will lead to deterioration of quality of the bank staff.
For the four years ending 30.6.1984, the number of
persons who resigned from the banks seeking employment
in some other field was 58. The total number of staff,
excluding the Chief Executive Officers, as on the above
date for 50 banks was 1,178 resulting in an average
of 23.56 per bank.

2.8.23 Hence, it is felt that the Primary Co-operative

Banks coming under the Banking Regulation Act should be
given a common cadre in the state level and a seperate
department should be formed under the State Co—operative
 63

Bank for this purpose. The staff requirements of the banks

should be met by this department in consultation with the
do-operative Department. For this, it can follow the
procedures of the Banking Service Recruitment Board (B.S.R.B.)
meant for the nationalised banks. The training of the staff
should be conducted periodically on a compulsory basis.
Promotions should be based on seniority-cum-efficiency and
not on seniority alone. For this, competitive objective
type examinations and interviews should be conducted and
the confidential reports sent by the Chief Executive
Officer and board should also be taken into account. This
will enable the banks to get the right man in the right
place. Besides, as it is done by a common body for all
the co-operative banks in the state concerned, the
selection can be from a larger group and hence considerable
savings in cost of recruitment can be effected.
2.8.24. Regarding monetary benefits,perquisites and
non—monetary benefits there was no uniformity in these
banks. For example, of the 51 banks as on 30.6.1984, only
9 banks were providing housing loans to the staff. 7 banks
provided vehicle loans and cash credits. Other banks did
 64

not have any provision in this regard. 18 banks were

not covered by the Employees Group Insurance Scheme to
provide retirement benefits. In one bank, no measures
had been taken to provide for gratuity. The views
expressed by the respondents in response to question
numbers 17, 21 and 22 in the interview schedule reveal that
the staff had protests in this regard. Many of them have
stated that the managements were not caring for their
demands which have already been met by many other banks
in the same field.

2.8.25 It is true that the perquisites and fringe

benefits available to the staff depend on the working,
funds and profits of the bank. Yet, there should be some
uniformity in this respect. As stated in 2.4.2, banks are
now classified into 4 classes based on working capital.
This is not scientific. Yet, worse is the fact that above
Rs. 50 lakhs of working capital all banks were classified
in class I. As on 30.6.1984 the working capital of 3 banks
had exceeded Rs 3 crores. This reflects the lack of
imagination of the department in classifying the banks.
Working capital reflects only one side of the working of
a bank. A more realistic classification should consider
 65

the following factors giving due weightage for each

factor :

a) Deposits - Advances
b) Number of transactions
C) Audit classification
d) Dividend
e) Viability and
f) Working capital
2.8.26 The monetary and non-monetary benefits,
perquisites and fringe benefits should be based on the
above classification and uniformity should be maintained
by banks falling in the same class. The State
Co—operative Bank can frame policies in this regard.

2.8.27 The data collected in response to question

No. 17 in the interview schedule revealed that 28
banks, for the four years ended 30-6-i984, did not have
the problems of labour turnover. The data for one bank
was not available. For the remaining 22 banks the
labour turnover ratio i.e

gumber of employees replaced during the period X 100

Average number of employees during the period
was less than 15% for the four years period.
 66

2.8.28 In all the banks in Kerala, the board of

directors is the loan sanctioning authority except for
gold loans. lhe minimum period between 2 meetings is
one week and the maximum period is one month. Even
for the premature payment of deposits, board's
sanction is required, whereas in commercial banks, the
branch managers can sanction small loans without
consulting the Head Office. Therefore in urban banks
also small loans and small deposits should be under the
powers of the Chief Executive Officer. The amount of
such loans and advances should be based on the
classification of the banks and therefore should vary from bank
Ito bank. This will strengthen the relationship
between staff and customers.

2.8.29 In the light of views expressed by the

respondents, in response to question Nos. 12 and 13
in the interview schedule, it is found that there exists
mutual co-operation and healthy relationship among and
between share holders, staff and board of directors in
44 banks. In 7 banks the relationship between staff
and board of directors was not satisfactory. Neither
the directors nor the members of the staff were prepared
to disclose the reasons and effects of this.
 67

Dividend :

2.9.1 The ‘A’ class share holders of a co-operative

bank are entitled to a maximum of 10% by way of
dividend. The average rate of dividend, for four years
ending 30.6.1984, declared by banks in Kerala :

TABLE — 7

Table showing the classification of banks on the basis of

dividend declared

10
98 -- 10 9 24
Dividend rates (per cent) Number of banks

21
765 ---786Nil
71
43 -- _542 1
21Nil
- 3
— 27l
4
Data not available 1
Total 51
source : Data collected in response to question number 21
in the interview schedule
 68

Viability of Urban Co-operative Banks :

2.10.1 Urban Banks have an important role to play

in the field of banking in urban and semi-urban areas.
An area is said to be metropolitan where the total
population is over 10 lakhs and if the population is
above one lakh but less than 10 lakhs, it is called
an urban area. A semi-urban area is one where the
population is less than one lakh38. The development
of Urban Banks should be on dynamic and innovative
lines and for this, economic viability is absolutely
essential.
2.10.2 An institution can be deemed as viable, if
the income earned is adequate to cover its expenditure
and leaves a certain amount of surplus to pay a
reasonable return on capital39. Thus the ability to
earn profit is a basic requirement, but merely because

38 Ibid P 71
39 Report of the Committee on Urban Co-operative Banks­
Reserve Bank of India, Bombay Edn : 1979 page 69.
 69

an institution is working at a profit, it cannot be deemed

as viable40. Banks with very low level of operations are
making profits, keeping its management and establishment
expenses at the minimum. Therefore, a more realistic
approach to viability is to see whether or not an urban
bank is able to carry out the role assigned to it. A
viable unit should be able to adequately tap the
potential both by way of collection of deposits and
by way of lendings in its area of operations. Efficient
management and quantitative and qualitative adequacy
of staff, are required for this. In other words
"viability is closely linked to efficiency of operations
and management" 41.

2.10.3 Apart from the efficiency of management and

adequacy of staff, area of operation, location of the bank,
number of branches etc. are factors determining the
efficiency of a bank. The norms of viability, therefore,
should consider all these factors. The norms of viability

40 ibid
41 ibid P 70
 70

prescribed by the dommittee on Urban Co-operative

Banks in regard to share capital, reserves, deposits,
borrowings and working capital are as follows :42
Rs. in lakhs
Metropolitan Urban Semi—urban
Centres Centres Centres
Share capital 6.00 4.50 2.25
Reserves 1.20 0.90 0.45
Deposits 44.00 33.00 17.70
Borrowings 6.00 4.50 1.50
Loans and advances 40.00 30.00 15.00
Working capital 57.00 43.00 22.00
2.10.4 The above norms are to be attained by a bank
at least by the end of 5th year. "However in order to
ensure the sound growth of urban banks, the Reserve
Bank has been stipulating the collection of a minimum
share capital of Rs. 3 lakhs prior to licensing of a
new bank. Depending on the area proposed to be served
and the banking facilities available in the area,
,suitable relaxations are made in this regard43.

42 ibid page 76
43 ibid
 71

2.10.5. The non—viability of Primary (urban) Banks

is due to a number of reasons. Section 11 of the
Banking Regulation Act states that no co—operative Bank
shall commence or carry on banking business in India
unless the aggregate value of its paid up capital and
reserves is not less than one lakh of rupees. Here
value means the real or exchangeable value and not the
nominal value as shown by the books of accounts. On
account of erosion in the value of assets, and in turn,
depletion of the realisable value of paid up capital
and reserves to a level of less than Rs. one lakh,
banks may become unable to satisfy section 11 of the
Act. Very high rate of overdues is another reason for
the non-viability of banks. when overdues are large,
a sizeable portion of the own funds are eroded in the
event of non-recovery of overdues.
2.10.6 There is another class of weak Urban Banks
in the sense that their business is very low in spite
of their existence for a long time and they are not
viable. "On the basis of recommendations of the
Committee on Urban Co-operative Banks, it has been
decided that such banks should be identified and they
should be given a programme of revitalisation to meet
 72

the level of viable business within a period of 3 to 5

years as per the standards referred"44; Failure to
meet the level of viability may call for voluntary or
compulsory merger with the adjoining Urban Banks or
even liquidation in case of no other alternative.
2.10.7 Non-availability of well qualified and
competent hands to function as a Chief Executive Officer
might be one of the factors contributing to the weakness
or stagnation in the business of an Urban Bank45.
Providing a common cadre for Primary (urban) Co-operative
Banks and recruiting staff including the Chief Executive
Officer by a common outside independent authority can
solve this problem. This is because the common cadre
will enable inter-bank transfers and above all, the
selection of staff can be from a larger group;
2.10.8 The Reserve Bank of India prepares lists of
weak Urban Co—operative Banks and circulates these among
the Registrars of Co-operative Societies and the State

44 "Back ground materials for the Regional Seminar of

Directors and Chief Executives of Primary (urban)
Co—operative Banks and District Co—operative Banks“­
Kerala State Co-operative Bank Ltd., Trivandrum
Edn: 1983 page 7.
45 ibid
 73

Co-operative Bank. On the basis of this list, the State

Co-operative Bank assists the Primary Banks concerned to
overcome their weaknesses and to emerge as viable units
within as short a period as possible.
2.10.9 A weak bank, as per the norms adopted by
the Reserve Bank of India, is one whose bad and doubtful
debts, other bad debts and accumulated losses exceed
25% of the own funds or whose overdues exceed 50% of the
outstanding loans 46. The healthy growth and development
of co-operative banking has been adversely affected to
some extent by the existence of such weak and
non-viable banks. Such banks are brought under a scheme
of rehabilitation. Review Committeesare set up by the
C0-operative Department and the Apex Bank is required to
set up a rehabilitation cell to monitor the programme
and evaluate the progress.
2.10.10 In India, as on 30.6.1976, there were 115
Primary (Urban) Banks uhder rehabilitation, which
figure has come down to 71 at the end of June 1982 47.
In addition to this, there were 30 banks as on
30.6.1982 which were not satisfying Section_11 (1)

46 ibid
47 ibid
 74

(minimum requirement of capital and reserves) and

Section 22(3) (a) ebility to pay present and future
depositors) because of heavy erosion in the value of
assets and other operational defects. As on 30.6.1982,
there were 8 banks under rehabilitation in Kerala.
The number increased to 9 as on 30.6.1985, by removing
two banks from the list of weak banks and bringing
3 more banks to the list48.

2.10.11 The latest development in this line is the

suggestion to revise the norms of viability which has_
been in vogue ever since 2nd June 1979. The Reserve
Bank has now proposed, after studying the position of
several Urban Banks to revise the norms necessitated
as a sequel to various instructions issued by the
Reserve Bank governing lending policy as well as
interest rates on deposits. Since 1979, interest
rates on advances, especially to the weaker sections
and priority sectors have undergone a downward revi­
sion affecting the profitability of Urban Banks. At
the same time the cost of deposits have gone up on
account of upward revision of therates of interest on

48 Reserve Bank of India, Trivandrum - Circular No.

UBD (T) No. INSP. /K025 (A) — '86 dated
14.3.1986.
 75

deposits. The cost of management (establishment) has

also increased considerably resulting in lower margin
of profit. The proposed norms are as under :

Rs. in lakhs

For Banks For Branches

Urban Semi­ Urban Semi­
I term Centre Urban Centre urban
Centre Centre
1. share capital 9.00 4.00
2. Reserves 2.00 1.00
3. Own funds (1+2) 11.00 5.00
4. Deposits 70.00 32.00 30.00 15.00
5. Loans and I 70.00 ’30.00 25.00 13.00
Advances I
6. working capital 90.00 40.00
7. Borrowings 9.00 3.00
2.10.12 In the above proposed norms,borrowings may
not be necessary, if the bank is able to achieve the
required level of working capital with own funds and
deposits. If the revised norms are implemented,the
‘number of weak banks in Kerala will become 10 as on
30.6.1085.
 76

Employment of FundsL_Profit and Profitability :

2.11.1 The term profit, from the accounting view,

refers to the excess of income or revenues over expenses
for a given period. But the term profitability is
composed of two words ‘profits’ and ‘ability’. Ability
means earning power or operating performance of the
concerned investment49. Thus the term profitability
can be defined as the ability of an investor and
investment to earn a positive return from its use.
2.11.2 The general health of a firm is very much
reflected in the health of its earnings. This is true
in case of co-operative banks also. when a bank fails to
attain and maintain a reasonable return from its
investment at least to run at break-even, it can be
called a sick unit. Co-operatives are not rigidly
profit-oriented, but they cannot afford losses. Even
the bye-laws of the banks are silent about the level
of profit earnings. But they deal with the distribution
of net profits. "This clearly indicates that the profit
is neither the yardstick for measuring the efficiency
and achievement of the co-operatives nor the profit motive

49 "Profitability in Co-operatives“ by G. Anjaneyalu

and Dr. D. Dakshinamurthy - “The Co-operator"
page 289 Vol. XXIII No. 11 Dec, 1985.
 76

gmployment of FundsL_Pr9£it and Profitability :

2.11.1 The term profit, from the accounting view,

refers to the excess of income pr revenues over expenses
for a given period. But the term profitability is
,composed of two words ‘profits’ and ‘ability’. Ability
means earning power or operating performance of the
concerned investment49. Thus the term profitability
can be defined as the ability of an investor and
investment to earn a positive return from its use.
2.11.2 The general health of a firm is very much
reflected in the health of its earnings. This is true
in case of co-operative banks also. when a bank fails to
attain and maintain a reasonable return from its
investment at least to run at break-even, it can be
called a sick unit. Co-operatives are not rigidly
profit-oriented, but they cannot afford losses. Even
the bye-laws of the banks are silent about the level
of profit earnings. But they deal with the distribution
of net profits. "This clearly indicates that the profit
is neither the yardstick for measuring the efficiency
and achievement of the co-operatives nor the profit motive

49 "Profitability in Co—operatives" by G. Anjaneyalu

and Dr. D. Dakshinamurthy — "The Co—operator"
page 289 Vol. XXIII No. 11 Dec, 1985.
 77

is new to co—operatives. Rather, the surplus earned

enables the co-operatives both to eat their cake and
have it"50.
2.11.3 At the same time, these institutions have
to take up great social responsibilities. To fulfil
this and function as economically viable units, a
sufficient return on capital is necessary. Thus the
profitability concept should be viewed with a new
meaning in co—operatives and should aim at reasonable
profit maximisation in View of the following51 .
1) The attainment of social and economic welfare of
members.

2) A reasonable rate of return on the sum invested

must accrue to the society.
3) The rate of return should be higher than the cost
of capital or cost of loan.
4) The invested money must be recovered giving scope
for expansion.

50
51
 78

2.11.4 For the economic viability of an institution,

the income earned should cover its expenditure
adequately and leave 5 certain amount of surplus to pay
a reasonable return on capital. Lrofit, being the
excess of income over expenditure, much depends on the
relation between sources of funds and applications of
funds. Paid-up share ca ital, accumulated profits,
deposits and borrowings constitute the source of funds.
These funds are employed in the form of cash and bank
balances, investments, fixed assets, loans and
advances etc.

l\) .l1.S The data collected revealed wide variations

in the amount and proportion of resources and
investments. Therefore it became necessary, to
classify these banks, into diiferent groups and
sub—groups.

2.11.6 In this report, for the purpose of analysing

—' I-ICO
profit and profitability, the Primary Co—operative
sanks/divided into three categonesviz: Employees
Co—operative Banks, Banks Under Rehabilitation and
Economically viable yanks. of the 51 banks under study,
 79

3 fall in the first category, 9 in the second and the

rest in the third. The numbers of banks included in
each category are taken as on 30.6.1985 and the total
number as on 30.6.1984.

2.11.7 All the Employees Co—operative Banks as

on 30.6.1984 were economically viable units and were
making profits as per Profit and Loss Account. But
-the rate of increase in the operating profit i.e.,
net profit as per Profit and Loss account plus
non-operating expenses minus nonroperating income of
one bank, taking 1980—'81 as base year was negative.
The net profits for the year l983—'84 as compared to
1980-'81 of the 3 banks have increased by 60.42%,
124.53% and 43.16%. The bank whose operating income
index was negative for the year 1983-'84 had surplus
funds with it. (Data collected in response to question
No. 27 in the interview schedule).
Advances outstanding on
Deposits outstanding on 30th
30th June
June X 100 on 30.6.1984 was
only 108.52% as against 124.73% on 30.6.1981. Yet,
worse is the fact that, Rs. 4.13 lakhs was outstanding
under borrowings on 30.6.1984. Another bank also had
excess funds with it on the above date. Its rate of
 80

growth in the operating-profit with 1980-'81 as base

‘year was 41.95%. Its advances~deposits ratio on
30.6.1981 was 82.49% and 82.23% on 30.6.1984. The
3rd bank had no excess funds with it and its advances­
deposit ratio reached 262.885 on 30.6.1984 from
118.16% on 30.6.1981. Again the increase in operating
profit of the bank was 525% in 1983-'84 compared to
1980-'81. In several cases, ratios exceeded 100 because
own funds and borrowings has also been used for
advances.

2.11.8 Besides, the operating profit to working

capital ratio of the bank which showed highest increase
in operating profit was 2.18% for the year 1983-'84
while it was 1.81% and 1.02% for the other two banks.
In addition, investment in fixed assets also varied
widely. It is shown in table 8 on page 81.
 '
81

related ratios
——*’_j2-mgr ii.-éjjjjjjjjjjjjj
jjjjjj--_-jjj 11¢-njjjjjhuéjjjulxji
Number 2.3
14.87 :41.94
T12-21111-1 19.21 ?26.85
TXZTZX-iiffi 23.16 : NIL
TT 54.48 ?58.17
0.40 : 0.86
No excess Surplus
L...__..__-_ 111111 no deficit '
Net profit 1980-81 0.53 ' 3.29
1.19 ' 4.71
11111
Tjffi 1.19 ' 4.67
3 Z $ Z X 1'1 2 1 1
124.53% '43.16%
; X r 1 I 1.1 1 1 I
Increasing operating 525% 141.95%
profit 1 Z i I I 1.1 1 1 1
Advances deposit ratio 118.16% :82.49%
on 30.6.1981
QXI$IJI1I3
Advances deposit ratio 262.88% :82.23%
on 30.6.1984
Operating profit to
working capital 2.18% ' 1.81%
ratio (1983-84)
1 I 1 1 1 1'? I 1 1
Data collected in response to question
NO. 34 and 35 in the interview schedule and

data taken from the Profit and Loss Account

and Balance Sheet of respective banks.
 82

2.11.9 The structure of deposits and advances

reflects the cost consciousness and income consciousness
of the banks. Of the total deposits on 30.6.1984, more
than 50% was by way of fixed deposits. Current deposits
and savings bank deposits are less expensive. But two
banks do not have current accounts as on the above
date and for the other, deposits in current account
from only 0.09% of the total deposits. On the same
date, the share of'savings deposits in total deposits
were 27.44%, 26.70% and 15.13% respectively.

2.11.10 Irrespective of the purpose, period or

amount, loans and advances are charged at a flat rate
and the schemes of lending and rates of interest vary
from bank to bank. Above all, their present lendings
do not satisfy the norms for lending fixed by the
Reserve Bank of India, since they are formed with
limited interests i.e. welfare of a particular group,
as membership is restricted to a particular class of
employees. These banks do not provide membership or
credit facilities to the general public. Loans are
sanctioned ignoring the purposes for which they are
intended.
 83

2.11.11 On the basis of the above it is found

that, these banks should be excluded from the control
of Banking Regulation Act. This is because they are
classified as Primary Co—operative Banks only because
theyaccept deposits from non-members. Their credit
operations are restricted to members and are in the
forms of surety loans, hire purchase loans and gold
loans. Loans issued are mostly for consumption
purposes. From the point of View of economic development
of the society, these banks cannot play any positive
role. Therefore, there is no justification in
permitting these banks to accept deposits from
non-members. Hence it is recommended that the Employees
Co-operative Banks, presently classified as Primary
Co-operative'Banks, should go out of the purview of
the Banking Regulation Act and the direct control by
the Reserve Bank of India. In addition, they should
not be allowed to take deposits from non-members and to
use the word ‘bank’, ‘banker’ or ‘banking’ as part of
their names.

2.11.12 At the same time, the contribution by

these banks, to the economic welfare of its members
 84

cannot be ignored. The credit requirements of salary

earners cannot be met by commercial Banks as the loans
are often required for consumption purposes. An easy
solution to this is a net work of such societies. It
should be noted that, the working of these societies
cannot be compared with any other co-operative society in
the State. Therefore, the state Government should take
necessary steps to protect and promote such societies by
introducing a separate division in the office of the
Registrar of Co-operative Societies for better control,
making provisions for recovering loan instalments from
the monthly salary of employees and to avoid bad debts
and overdues etc.

2.11.13 As on 30.6.1985, 9 banks were under the

scheme of rehabilitation because of their economic non­
viability. (Refer - Viability of Urban Banks - 2.10.10).
The accumulated losses viz. debit balances in the Profit
and Loss Accounts of five of these banks outweighed
their accumulated profits in the form of reserves and
funds. as a result, the net own funds i.e. paid up
capital plus reserves and funds minus accumulated losses
of two banks as on 30.6.1984 were negative. Details of
funds and its employment as on 30.6.1984 and their relation
with profits are given in Table no. 9 on page 85
 85
T

I 1
I'
Serial num­

Deposits
2
I,I

3|
§%é{--L-----5-_-' . . . _ --L--L---­
" " - ' ‘ *: 20.61
Total ' , ' . , ,
Own funds I -0.04
I

" ' * ,39.50I

"s" “ "'63.35.
. 1.75I
* ' r10.64.
5.34.
' * " 9.05,
7.09:
- ' - r4.76:
-'r
3.59,-1.13,
~ - - " - “ ' - * ‘I’ - - - - - r - - -.- - - r - - r
I -1.111

0 ti ' I I I I
Reserves
- - " * -L:- 38.52
Net
- - -profit
' ' - - ‘$1.38,
- - -1--3.80
~ - -'-83.03:
, 1.06‘
~ - “I”
- * r42.47.
-3.60.
“ -'-
- - - -24.97‘
- - 0.93:
- " r8.28‘
--r
r - - 1.0s,—0.57,
-.- - ' r ' ' r
p§:§ft “9 . -3.80 . 1.06, 10.83. 0.93: 1.10:-1.39‘
- - - - - -'~ - - - - - -'- - - r ~ - - - - * r * - r “ * - - - ­
Borrowings
- - - - - - -: 17.95
- - -.-110.13‘
- -'- -14.34,
- r *24.74:
' -.- "12.34,
* r *4.65,
-r
Advances '.'.
outstanding' .',:''
outstanding.
X100 ' I : .
I '
+ Deposits :144.00 .97.82:100.68,310.43;
I, .
I . I,
Deposits
- - - - ~ - - - - -.- - - - '- r,- -'- *, - :* r,- ",r
outstanding: , ' . . , ,
RGSOUICGS. I ' I I I I
X100 . I : I I I I
+ Total , 53.50 .76.e9' 76.30. 25.05. 36.24.57.49. 67.33.
- - - - - - - ---I-'-----I-'--'-'I""-­
Borrowings
outstanding_ I: E. 'III.-I. II I

resources
X100 ‘ I. I' I. IIIII II
% Total . 46.60 I19.72. 17.27I 58.25I 49.42IS6.16n 24.09I
I

Over dues : I : I I I I
- — — — m -an-I-c-I-Ila-a--I--I-C-I-—-I-II--I-III--I-fil­
asaperu ' I ,. I I I I
I
I

to loans . I I. ‘IIII II II
I

centage . 11.00 I10.60‘ 41.80 38.42I 12.00-45.26: 20.6OI

outstanding.
Q — x — up-In‘:-I:—I:IcI--I:.—c-3&2-IvZII-G-IIDIIII-&—I-I-It-COG
I

Source : Absolute figures from Annual Accounts of

respective banks.
Note : Data were not available in respect of
One bank 0
 86

2.11.14 For 5 banks, borrowings were the main source

of funds. For them, the operating income was far
insufficient to meet even its operating expenses. As a
result, erosion of funds was experienced by these banks.
The percentage of overdues to loans outstanding on
30.6.1984 was very high for 3 banks. The overdues were
41.8%, 38.42% and 45.26%.

2.11.15 The ratio of interest paid to total expenses

and interest received to total income varied widely from
bank to bank. The range for the former for the 1983—'84
was 58.93% - 30.35% = 28.58% and for the latter it was
85.1% — 47.06% = 38.04%. The average ratio of interest
received to total income for other viable banks worked
out to 78.95% whereas the same for the non—viab e banks
was 69.88%. Similarly the average ratio of interest paid
to total expenditure for viable banks was 47.63% while
it was 42.79% for non-viable banks. This indicates lower
volume of banking operations.

2.11.16 On the basis of assets and liabilities of a

8. .
viable bank in a semi-urban area, as suggested by the
Committee on Urban Co-operative Banks "2, the deposits

52 "Report of the Committee on Urban Co—operative Banks"­

Reserve Bank of India, fiombay, Edn. 1979 page 80
 . .. 0.,
87

advances ratio i.e. Advances outstanding

Deposits outstanding X 100 C W98 to
84.75%. All the Primary Co-operative Banks under
rehabilitation as on 30.6.1985 are in Semi urban areas
with the exception of one which is in an urban area.
The details of the one banks were not available. The
ratios of seven banks show greater dispersion. The
range (largest ratio - smallest ratio) was 310.43% —
89.71% = 270.72%. The average ratio (Q) of the 7 banks
was 153.59% and the median ratio stood at 102.58.

2.11.17 The existence of a very high advances­

deposits ratio can be due to many reasons like excessive
dependence on borrowed funds, a very high share of own
funds in total resources, minimum investment in fixed
assets and other investments etc. The ratio of
deposits to total resources as suggested by the Committee
is 80.82%. But no bank in this category had attained
the ratio as on-30.6.1984. The average was 56.11% and
the median ratio was 57.49%. on the other hand, the
suggested share of borrowings in total resources is
6.85%, but all the 7 banks had a higher ratio as on
30.6.1984. The average ratio was 38.79%. Thus, it is
observed that all the non—viable banks in the
 88

semi—urban areas suffer from excessive dependence on

borrowed funds.

2.11.18 The only bank which was non-viable in the

urban sector disclosed an advances - deposits ratio of
86.83% as against the standard ratio of 90.91 as
suggested by the Committee on Urban Banks. The data
collected by the survey reveals that the bank has
surplus funds with it. This is harmful for the economic
health of the bank. by introducing new schemes of
advances or by enhancing the maximum limit of existing
schemes, the excess funds should be employed. It had
no borrowed funds as on 30.6.1984 and the ratio of
deposits to total resources was 88.06%. This is 11.14%
more when compared to the ratio based on assets and
liabilities of a viable bank in an urban Co-operative
Banks. In this report the term surplus funds or
excess funds refers to working capital - (loans and
advances + variable cash reserves as prescribed by the
Reserve Bank of India + other contingency reserves).

2.11.19 In the category of economically viable

Primary (urban) Co—operative hanks other than Employee's
Co—operative Banks, there were 39 banks covered by this
 89

report. 8 of them are located in urban areas and

31 in semi-urban areas as per 1981 census.

2.11.20 Paid—up share capital, Reserves and

surpluses, deposits and borrowings constitute the
total resources of the banks. The total resources of
the 8 banks in the urban area as on 30.6.1984 was
Rs. 1,584.47 lakhs resulting in an average of
Rs. 198.06 lakhs. As regards the share of components
in the total resources, wide variations are visible.
Only two banks in the category had borrowed funds
as on 30.6.1984 and the amounts outstanding were
Rs. 5.70 lakhs and Rs. 0.30 lakhs. For 6 banks more
than 80% of the total resources was from deposits.
The share of deposits in total resources of the other
two banks was 55.19% and 76.7 %.

2.11.21 when compared to other sources of funds,

share capital is least expensive because the maximum
dividend payable is only.1OA. But all banks are not

- . . , H 53 m
paying dividend at this rate. A viable bank should be
able to declare a dlV1deDQ of at least 6» . ihe
entire own funds of a bank are not available for
lending. A portion of it is always used for investment

53 ‘Report of the Committee on Urban Co—operative Bank,

Reserve bank of India‘, Bombay Edn. 1979 page 348.
 90

in fixed and other assets and in purchase of shares of

the central or apex bank. Therefore about 75% of own
funds could be deemed as available loanable resources

2.11.22 Deposits form a lion's share of total

resources of all banks. Though costlier than own
funds, accepting of degosits forms the primary function
of a bank. size and structure of deposits ranged
widely from bank to bank. dearly one third of the
deposits has to be statutorily maintained in the form
of liguid assets and only the balance amount is available
for lendings. Therefore, about 65 per cent of deposits
is available for lendinqs 55. The cost of deposits
depends on the rate of interest on deposits which are
subject to the directives of the Reserve Bank. Of the
total deposits, fixed deposits form more than 50 per
cent. According to the views expressed by the
respondents the average cost of deposits is taken at 9%.

2.11.23 For the lending operations, Urban Banks

are uostly self—reliant institutions depending on
their own funds and deposits. Borrowings are costlier
when comfiared to other constituents of the funds. In
the light of views expressed by the Chief Executive
 91

Officers of banks interviewed, the cost of borrowings

on an average, come to 12m. Unlike deposits or own
funds, normally, 100 per cent of the borrowings can be
used for lending operations. The various sources of
funds and related ratios are given below:

3e§£3_;.39
Table showing size and structure of total resources
of firimery Banks in the urban cextres (viable units only)

IIII IIIIII II
(Rs. in lakns)
= T. Z 3: ‘Z Z Z‘: 3 L‘ — L‘ =.‘Z $2.." = Z.‘ .. = = ._ Z Z _ .‘_" Z =
Seri-' Total ,‘epo- '.Borro-, Total ffshare of ,share of
al ' ownfunds
No.of' ,sits ,winos , Res0-
, , , urces ‘ownin,Leposits
‘funds ,in total
Banks‘
' , , ,. ,‘sources
. ‘total re—,resources
,as a per­
‘' ,. .., .‘as a per-,centege
'centage ,
I'- H--I' Rs. , Rs. , Rs. , Rs. ',
I H'*""'—::=:F.....;...I..........
I I _! .........._..?:..-:::=

II
1 ' 50.25 . 337.62 10.30 :388.17 ' 12.95 , 86.98
2 . 26.09 ' 209.57 ‘LIL '23”.66 , 11.07 ' 88.93
3 ' 34.59 . 168.35 ,NIL .202.94 ' 17.04 , 62.96
4 . 22.45 ' 264.45 ‘AIL '236.9O , 7.83 ' 92.17
5 ' 37.70 I 53.46 :5.70 : 96.66 ' 38.92 I 55.19
6 . 25.17 ' 82.89 ‘NIL 'lO8.06 , 23.29 ' 76.71
I

7 ' 10.77 I 52.63 :hlL . 63.40 ' 16.99 I 83.01

I : I 00 . co
8 . 29.58 ' 172.90 ‘BIL '202.48 , 14.61 ' 85.39
__ _____I__
_ _ _ _____ ,__,
_ ____ ____,___ W
__ _H....I.....
_ _ __ -....___L.__ __ .._ _.1 ...W.. ._
Source : Lats collected by the annual Reports
_ _.. —.
_ _­

Note : Eercentage share cf borrowings is not calculated and

hence the total or last two columns need not reach
2-.0029:
 92

2.11.24 Based on the Balance Sheet of a viable

Urban Co-operative Bank in the urban centre, as
suggested by the Committee on Urban Co-operative Banks,
the desirable ratios of own funds, deposits and
borrowings to total resources are 12.59;, 76.92% and
10.49% resyectively. Based on these ratios, all the
banks in this category except two are well placed in
the matter of own funds and deposits.

2.11.25 The total resources of a bank are employed

in the form of cash in hand and at banks and
investments to satisfy the licuidity criterion. A
portion of it is always invested in fixed assets and
the balance in the form of lendings. Cash with banks
and investments will earn some revenue to the bank
but cash in hand will not earn anything. A lion's
share of the income of a bank comes from interest
received on loans and advances. Based on the Balance
Sheet of a viable bank in an urban area, as suggested
by the Committee on Urban Co-operative Banks, a
desirable size of cash and bank balances is 4.62% of
total resources, investments 22.82%, loans 69.93%
56
and fixed assets and other assets 2.63% . Interest
charged on loans and advances vary from bank to

56 ibid page 369

 93

bank. Yet, on the basis of views expressed by the

respondents, on an average, loans will fetch 14%.
2.11.26 Based on the requirements suggested by
the Committee on Urban Co—operative Banks, about
70% of the total resources can be used for lending

. , 57 W .
and the margin i.e. the difference between cost of
funds and revenue earned from the employment of it
is 4.12% of total resources . out however, on the
basis of the report, fixed exgenses like staff
remuneration, rent, rates, taxes, electricity, directors

.'>/ " - r"-1 ' ‘ .

fees and allowances etc and variable expenses will come
to 2m or total resources . ihus, a viable bank in an
urban area should earn a minimum of 2.12% of total
resources as operating profit.
The following table shows the ratio of loans
and advances outstanding to total resources as on
30.6.1984 with operating profit and ratio of operating

57 ibid page 369

S8 ibid page 76, 77 and 78
 profit to total resources for the year 1983-1984.
'§'.'|-.
-W.-m, ., 14 ;..,,. __
I

Table showing ratio cf loan$'ou%standing to total

resources, operating rrwfit an: ratio 0; operation
zro‘1t to fctal IQPCII‘ . at or 30.6.1985.

tjjfij.
3.out
3',
tcperating
I I I I , __
dino other
,Profit ’_.
”
To .Rat10
operating
fnan
Of
_ 2 3:. “ "'.' 2': ...":' .... .. .. .. r. 3." _ .... ' ....
PM ._ s

II II III III ’
,stan- ‘Rs (laRhs}‘ e3§@U3€§
.resQn
,urces ‘, ' ,‘@610 t0
_tOtal
. ‘ I ‘IGSOUICGS
lntereat

3: ‘J: F 1:". -T: Z 7-: "" =' I ‘_"'. 7- :7. "1' ‘Z Z :2 Z :2 :3 L‘ I L’ F: L‘: ‘J.’ 2': :3 Z"
, 81.21 . 0.88 , 0.23 , 4.09;
3 689 ‘ 3 . ‘,E'oO1"".)
II'I III‘IIIII,‘I‘I’I'
' 70032 ' 3007 ' lofil ' 20g2%
’ 56052 1 4072 ' 1065 ; 7076¥
, 83.19 , 7.54 , 7.78 . 3.49%
4 C\ {B @

II III I1IIOnI. .I
I‘
Source Absolute figures from annual Reports
 95

2.11.27 From the above it can be observed that

3 banks do not show the desirable ratio of loans to
total resources. The data collected from these banks
reveal that they had surplus funds with them as on
30.6.1984. No doubt, this reflects the inefficiency of
management. Either by introducing new schemes of loans
and advances or by enhancing the maximum limits of
existing schemes of loans, the excess funds should be
deployed more effectively.

2.11.28 On the basis of the ratio of operating profit

to total resources, it is observed that no bank has shown
the suggested ratio except one. But in all the cases,
the ratio of operating profit to total resources has
exceeded the suggested ratio. In spite of a very high
operating expenses ratio, 3 banks have, comparatively, a
high operating profit ratio because, in addition to
banking business, they are conducting chitties. Though
it is sanctioned by the co-operative department, the
Reserve Bank of India has not given permission to it.
Conducting chitty business is out side the scope of
banking business as per section.6 of the Banking
Regulation Act. As such it is a matter of contravention
of law and therefore the Reserve Bank should take
necessary action in this regard.
 96

2.11.29 In the case of Primary (urban) Co—operative

Banks located in the semi—urban areas, the norms
suggested by the Committee on Urban Comperative Banks
working with a reasonable amount of efficiency were
as follows59:
Share in Application of Share in
Source of funds total funds funds total funds
Own funds 12.33% Cash in hand and I
with bank I 4.84%
Deposits 80.82% Investments 23.93%
Borrowings 6.85% Loans 68.49%
Fixed and other I
assets 9
quqnc-o¢—o&QQ-nj
.1-L1:-§...——.ng

A margin (as explained in 2.1l.26)of total resources should

be available. However, fixed and variable expenses as
explained in 2.11.26 will show 2.55%. Of total funds and
therefore the operating profit, at the minimum will be
4.16 — 2.55 = 1.61% of total resources.

2.11.30 The volume of own funds, deposits and total

resources showed a wide range as on 30.6.1934. For
example own,fi funds of banks ranged from Rs. 4.33 lakhs
to 96.46 lakhs while deposits ranged from Rs.25.99 lakhs

59 ibid page 80, and 372.

 97

to Rs. 825.04 lakhs. The average own funds per bank

was Rs. 23.05 lakhs while the average deposits per
bank was Rs.139.84 lakhs. The median value of owned
funds worked out to Rs. 16.42 lakhs and median value
deposits Rs 7941 lakhs. The range for total resources
was Rs. 908.15 lakhs and Rs. 34.18. A frequency
distribution related to own funds, deposit, borrowings
and total resources is given in Table No. 12 on page 98.

2.11.31. The average total resources of a bank, as

on 30.6.1984 worked_to B. 167.65 lakhs. The median
value of resources was H. 84.38 lakhs. This indicate
the dispersion of banks.

2.11.32 For the year 1983-'84 two banks did. not

earn any_profit. Instead, their operating losses were
0.55% and 0.72% of the total resources. For the
remaining 29 banks in the semi-urban area the ratio
of operating profit to total resources ranged from
0.10% to 5.65%. The details were shown in table
N0. 13 on page 99.
 98
'

H.

o.‘

mwousomom Hmvoa . mmc«3oHuom_ . muamomon

. mHnmaam>m . . . . m
VO0Ho®oOm GO WM mmunsomwu HMPOH UCM mmcfisouuom umuwmomoa

‘I’:

.ao:nm 2:0 mo manna on» no axcan mo ccausnauuuao ocazocm wanna

. . .Iouuon #50. . . . ... --. -...-H.

mvuomom Hmsazm mousm

ma . ooano . ma . ofiao . pa . ooauo . m . oa I o .m . oomuooa . . . omaoa . v . oomuoofi. n . on s o

833 . 35.3 . 933 . $6.3 ._ mxcmn . $5.3 . 933 . . Bflma

mo uwgedz “av mmmao . mo uwnidz av mmmao. mo nwnsdz . av mmmao. mo uwnedz . flu mmmao

Illllll IIlLIII.lln-IIIIILIIIIIIIIIIIILIII. IIIIIIILIIIIIIIIIIILIIIIIIIIIJIIIIIIIIIIILIIIIIllll. I
m . oo¢aoom . H . omuom . m . oomnoom. o . om u om m M . oomtoow . a . ovnom . u . oovtoom. n . ov a om
Loli ' ' U U E II- I a . ooounoom . .nvH3 mxcmm. a . oomnoov. H . om n ow ¢ . you mama . «H . . a . oomuoom. a om u om . ooan om . . . . . . V . 0HDQHHfl>w
 (-3; 373.?

336773
F191
(5493) 99
TABLE : 13

Table showing classification of banks on the basis

of ratio of operating profit to total resources
for the year 1983—'84.

Class yumber of banks

up to 1 per cent 11
1 per cent to 2 per cent" 6
2 per cent to 3 per cent 4
3 per cent to 4 per cent 2
4 per cent to 5 per cent 0
above 5 per cent 2
Data not available 4
big
.-w‘_’

Source : Annual Reports

2.11.33 The rate of operating profit of 16 banks was

below the suggested minimum of 1.61% of total resources.
7 of them had suprlus funds with them but other 2 banks
complained of shortage of funds. Analysis of the ratio
of loans and advances outstanding to total resources
revealed that 19 banks had advanced more than the
suggested proportion. For 4 banks, whose operating.
 100

profit was less than 1.61% of total resources, thesratio

of loans outstanding to total resources was less than
68.49%. At the same time they had surplus funds with them
as on 30.6.1984. For all the banks the ratio of expenses
(as explained in 2.11.26) to total resources was lT1OI‘€
than 2.55%. Thus it can be inferred that low ratio
of advances to total funds, holding funés idle, and
excessive use of funds for administration and office
expenses are the reasons for low srofita ility. A
classification of banks on the basis of loans-resources
ratio and possission of funds is given below:

ggple showing the

Classes of
ratio of Position of funds as on 30.6.1984
iigggiggt
to total
Surplus Deficit Neutral Total
funds as
on 30.6.1984
==:=:::::*_-:*.:::::-2-_-:: :_—_:=::=::=:"..::=:c?
50 — 60 4 REL NIL
60
70 -
- 70
80 44NIL
1 8 2
136
80 — 90 2 2 NIL 4
Total 14 3 10 27
Source : Date collected in respomse to question No. 27 in
the interview schedule and Annual Reports
Note 3 Data of 4 bank S were not available.
 101

2.11.34 Usually the rrimary Banks, do not write off

debts due as bad debts. For the four years ended 30.6.1984,
only 7 banks have written off dues as bad debts and that
also once each. For the seven banks, the average amount
written off was B. 13,430/- for the said period. int, the
problem of excessive overducs is experienced by alvcst all
banks. The ratio of overdues to loans outstanding as an
30.6.1984 ie. over due:
loans outstanding x 100 varied from o. %
to 45.26%. The simple arithematic mean for the above was
17.73% and median 16.19%. It is doubtless that creation
of reserves for overdues in the form of provision for bad
and doubtful debts has affected the profits of the banks
and also the availabilities of funds. To solve this
problem, an easy solution is to restrict the volume of
unproductive loans.

Area of Operations

2.12.1 Data collected in response to question number

6 in the interview schedule reveal that there exists a
wide imbalance in the jurisdiction of each bank. 36 banks
use the term 'urban' or ‘town’ as part of their names.
But, all of them are not situated in urban areas.. Many
urban centres like Ernakulam do not have an urban
 102

co-operative bank and are not covered by any of the nearby

banks. Of the 1281 urban banks in India, 996 are in
Maharashtra, Gujarat, Karnataka and Tamilnadu 60. This
shows that nearby 78% of the banks are established in
4 States. In Maharashtra and Gujarat, urban banks have
branches throughout the State and even outside the
State 61. On the otherhand, in Kerala, the jurisdiction
of all the Primary Co-operative Banks is restricted
to a few villages or Municipality. These two extremes
point out the absence of and need for a national policy
by the Reserve Bank of India, regarding the area of
operations of-vrimary Banks. At present, permission from
the Reserve Bank is necessary for Primary Banks to extend
their area of operation. The respondents to the intervien
were unanimous in that the Reserve Bank is refusing
applications for extention of area of operations of
Primary Banks mainly on two reasons :

a) the area applied for is not an urban area.

b) the area applied for has sufficient banking facilities.

60 "Urban Co—operative Banks-New lending policy & problems"

Dessertation submitted in the Regional Seminar of Urban
Banks held on 20;7.1986 at Tripunithura - page 3.
61 ibid p. 19
 103

2.12.2 The adequacy or otherwise of banking

facilities cannot be determined only on the basis of
number_of bank branches and population. At the same
time, to maintain mutual knowledge, understanding and
cohesion among members and to avoid the dilution of its
co—operative character, the area of operation of Primary
Banks should not be too large or unrestricted. Therefore
it is found, hat, the Reserve Bank should have a national
policy in this regard taking into account the suggestion
made by the Madhava Das Committee on this issue, which
are62:
a) “Urban Banks having their area of operation confined
to the area of municipal limits of the town may be
permitted to extend the operational limits to the
adjoining rural areas ie., up to the peripheral
limits in conformity with the definition of ‘Urban
agglomeration’ as given in the Urban Land (ceiling
and Regulations) Act 1976".

b) “It is desirable to permit banks in metropolitan

centres to operate through out the limits of the
metropolitan area".

62 Report of the Committee on Urban Co~operative Banks­

Reserve Bank of India—Eom%a;~1979 p. 111 and 112.
 10/.'.

c) "The tendency to organise more than one bnnk in

the same area of a city without adequate scope
is not desirable".
2.12.3 In addition to the above norms, however,
sufficient flexibelity shoull he provided for, under
certain circumstances. For example, if an urban bank
is weak and operations are limited, considering the
requirements of the area, the formation of a new bank
in that area should be allowrd.

Other Facilities in Primary Co—operative Banks

2.13.1 The primary functions of a bank are accepting

deposits and providing loans and advances. But this
dual role of a bank is not enough for its healthy
existence. To—day, almost all banks are undertaking a
number secondary services, like collection and payment
of funds for the customers, providing safe deposit_locker
facilities etc. similarly, newer and newer schemes of
deposits—and advances are necessary to attract more and
more customers. Location of the bank, amenities to
customers like chairs, fans, drinking water etc. are
other factors which influence the number and volume of
transactions in a bank.
 105

2.13.2 The data collected from respondents in

response to question numbers 29, 30, 31 and 32 in the
interview schedule revealed that many co—operative
banks have to go much ahead in this regard. As on
30.6.1984, only 21 banks could provide safe deposit
locker facilities. Facilities for collection and
payment of funds for the Customers were available only
in 21 banks, 7 banks had evenirg counter facilities and
one bank had holiday counter ir addition to evening
counter. 26 banks had facilities for bank draft
transactions iree of cost. 34 banks were availing the
benefits cf Mutual Arrangement Scheme, Kerala (Mask).
But, 6 banks, on the other hand, were not rendering any
of the above secondary services.

2.13.3 During the four year period ended 30.6.1984,

13 banks had not introduced any new scheme of deposits
or advances. Yet worse is the fact that 9 out them had
surplus funds with it and 2 were running short of funds.
This shows the lack of dynamism on the part of management
which retards the development of a bank. The banks with
surplus funds could have introduced new schemes of advances
and banks which suffered from difficiency of funds could
have introduced new schemes of deposits.
 106

Other Findings

2.14.1 According to section 18 and 24 of the Banking

Regulation Act, every Primary Co-operative Bank is
required to maintain a Cash reserve not less than 3% of
total time and demand liabilities with itself or in
current account opened with other banks notified by the
Central Government. Similarly, not less than 25% of
the total time and demand liabilities should be
maintained in cash or approved securities. Though, all
banks have strictly followed these regulations during
the period under study, all respondents expressed the
opinion that, they should be allowed to make investments
outside the co-operative movement. They have complaints
that the Central Co-operative Banks are not impartial
in interest rates on deposits by urban banks and other
Co-operative Societies. In this regard, it is felt
that the Primary Banks should be allowed to keep accounts
with other District Co—operative Banks to maintain the
statutory reserves, provided, they are not availing any
financial assistance from the Bistrict Co-operative Bank
to which they are affiliated.
 107

2.14.2 All respondents were unanimous that, there

exists severe redtapism, and bottle necks in the
State Co-operative Department in matters connected with
sanctioning orders, settling arbitrations, responding to
communications etc. The department is much concerned
with agricultural societies and the department staff
lack proper training in banking. The classification of
Primary flanks on the basis of working capital alone and
grouping all banks Having more than W. 50 lakbe working
capital n class I reveals the lack of imaginnlion and
}Jo

working knowledge of the Co-oyerative Department. To

solve this problem, the department should be sufficiently
staffed and they should be given yeriodical training on a
compulsory basis. In addition, the establishment of a
seperate cell solely meant for Primary Co-operative Banks,
coming under duel control, with sufficiently trained
staff is desired.
2.14.3 Preparation and publication of annual accounts
ie.. profit and Loss Account and Balance Sheet is
necessary for a bank coming under the Banking Regulation
Act. It is observed that the Co~operstive Banks should
give up the :Xi3tiUC form of Vrofit and Loss Account and
 108

Balance Sheet. At present, the annual accounts contain

detailed information regarding amounts written off as
bad debts and reserves created for bad and doubtful debts.
If the public is allowed to know the real position of bad
and doubtful debts in a bank, it may dilute the confidence
of the public in the bank. In addition, it may act as a
stimulation to defaulters. Therefore it is advisable
for the co-operative banks to adopt the form of Profit
and Loss Account and Balance Sheet prescribed for the
commercial banks by the Reserve Bank of India.

Conclusions and Recommendations

2.15.1 One of the basic principles of Co-operation

is open membership. Membership of all primary societies
is open to all eligible persons who wish to avail
themselves of the services of the bank and are prepared
to abide by the obligations of membership, provided
they are residing or employed in the area of operations
of the bank. But in 5 banks, the demand for shares was
not met at all. In 7 banks, even the application forms
(to apply for shares) are issued only on a written
request and that also with the consent of the board of
 109

directors. Besides, 3 of these banks insist on getting

the application recommended by one of the directors.
No, doubt, this is an unhealthy tendency which has to be
stopped at any cost. In addition to educating the public,
the Co—operative Department and the state Government
should be more vigilant in this regard.
2.15.2 The participation of members in the working
of the banks and general body meetings gives an
unsatisfactory picture. In three hanks, where monitary
incentives are offered to shareholders to attend the
meetings, the average strength in the meetings for the
four years ending 30.6.1984 is more than 70%. In all
other cases it was less than 15%. 12 respondents said
hat they had to use personal influence to constitute
the necessary quorum. The members should be sufficiently
educated in this regard. This is possible by conducting
seminars, group discussions, workshops etc. If necessary,
suitable provisions should be incorporated in the bye-laws
of the banks and the Co-operative societies Act.

2.15.3 The study has revealed the qualitative

insufficiency of board of directors, resulting from the
absence of a proper educational background and excessive
political influence. Hence it should be made compulsory
for those who contest for directorship :
 110

a) that they have a prescribed minimum qualification

ie., the ability to read write and understand things
without the help of others.

b) that they have completed atleast 2 years as regular

members.

c) that they have had an operating account with the

bank atleast for the same period.

This is because only those having continued association

with the bank should be considered eligible to contest
for directorship.
2.15.4 To develop the board of directors into a
competent administrative body, there should be continuous
programmes in the form of periodical training, conducting
workshops, seminars, etc. on a compulsory basis.

2.15.5 Except in the case of gold loans, all types

of loans in a Primary Bank are given only after obtaining
sanction from the board of directors on individual
applications. The study revealed that only 40 banks
could conduct the board meetings in time during the period
of 4 years ended 30.6.1984. In all other cases there were
adjournments of board meetings due to lack of quorum.
 111

This is not a healthy indication. 2heJye—Laws of banks

should contain necessary nafegnarfin in this regard. For
exarnplrta, the ab.<.3en<:@ of a c1j-1;‘<»r:tor in 1:\-~30 or three
consecutive board meetings should result in the termination
of his directorship.
2.15.6 In 27 out of 51 banks, the board of directors
had government nominees as on 30.6.1984, But none of them
were specialists or atleast persons with practical know-hcw
in the banking industry. This shows the lack of interest
from 1,110 governrnr.-mi-rt .“.j.(":6j? :i.n~ti'1c (T.-:vr~10_rf=1nC.-nt of
Co-oynrative_Sector.

2.15.? There was no uniformity in thn staffing

pattern in the banks visited in connection with this study.
Many banks are under~stafEed. The number of staff required
for a bank is fixed on tho Basis CE cl­ ssification '.' U

of banks as per Section 80(c). as for this section,

workinc
3 capital forms the sole basin of classification.
(refer 2.4.2 and 2.8.24). Eat Worflv is the fact that,
./\.. .&LI
all 1;:-:=nks whose wc:..»;'-"::_‘in<j <"«-"'=1‘«'i I:-":1 :3‘-''.OF" 5.0 lakhs; r".tJ"r“.

put in class one. This is unscientific and reflects tn“ .

lack imagination of the Cc—oyerativn Dornrtment in ' .,..o

classifying the banks. n more realistic classification is

 111

This is not a healthy indication. thejiye-Laws oi banks

_should contain necessary eefeguardn in this regard. For
example, the absence of a director in two or three
consecutive board meetings should result in the termination
of his directorship.
2.15.6 In 27 out of 51 banks, the board of directors
had government nominees as on 30.6.1984, But none of them
were specialists or atleast persons with practical know—hcw
in the banking industry. This shows the lack of interest C]

from i-1"1F? goxrernirzentsr :-*.J'.€e iI'1"U'1C r?«=v‘c~l.cIf=inr:-nt of

Couoyeretive Sector.

2.15.? There was no uniformity in the Staffing

pattern in the banks visited in connection with this study.
Many banks are under-staffed. The number of staff required
for a bank is fixed on the basis of classification
of banks as per section eO(c). As yer this section,
working capital forms the sole basin of classification.
(refer 2.4.2 and 2.8.24). Yet worse is the fact that,
.L~ I..
all ‘r.':-nnkss whose x-n:.wr‘;<.1'n.-_; <"«*‘=1*.i!_:e"1l r‘a~:-:-:*~r"-6'“: "-' F-O la.kh.<.; F‘.'..T”f'.?

put in class one. This is unscientific and reflects the

0

lack imagination of the Ce-operativn Defiertment in

classifying the banks. n more realistic classification is
recommended considering deposits, advances, number of
transactions, audit classification, rate of dividend,
viability and working capital. The number of staff
required for each bank, their wonetary and non-monetary
benefits, perquisites and fringe benefits etc. should be
based on the above classification and uniformity should
be maintained by banks falling in the same class.

2.15.8 The procedure for recruitment of staff varies

from bank to bank. Adequacy, both quantitative and
qualitative, of staff including the Chief Executive
Officer is a must for every bank. This is especially so
when they have to compete with commercial banks in many
respects. Hence the recruitment and training of staff
requires serious attention. Therefore it is recommended
that the Primary Co-operative Ranks coming under the
Banking Regulation Act should be given a common cadre in
the State level and a separate division should be formed
under the State of Co~operative Bank for.this purpose.
The Staff requirements of the banks should be met by this
division so that the selection of staff can be from a
larger group in addition to considerable savings in cost
of recruitment and training and ensuring better quality.
 113

2.15.9 At present. the promotion of staff in all

banks, is based on seniority only. To ensure that
efficiency is rewarded sutiiciently, all banks should
adopt a scheme of merit rating and efticiency evaluation.
2.15.10 To avoid the delay in transactions and enrich
the banker customer relationship, like commercial banks,
small loans and small deposits should be under the powers
of the Chief Executive. The amount of such loans and
deposits should be based on the classification of the
banks and therefore will vary from bank to bank.

2.15.11 Of the 51 banks under study, as on 30.6.1995,

9 banks were identified as weak and were under
rehabilitation. Very high rate of overdues, erosion in the
value of fixed assets, keeping idle funds etc. are the
major reasons for this. To over come this, the amounts of
overdues should be kept at minimum by continuous monitoring
and by taking appropriate steps for recovery. Besides,
excessive dependence on borrowed funds should be reduced
and establishment and administration expenses should be
kept under proper check. Similarly, by introducing new
schemes of loans or increasing the maximum limit of
existing schemes, the excess funds could be deployed.
 114

2.15.12 An analysis of the sources and employment

pf funds revealed that fhO_EmplOyeCS Co-operative Esnkc
Credit operations are restricteo to membors and membership
is restricted to a parrjcular class of employees. Thoy
do not provide membership or credit facilities to general
public. Najorit; oi the loans sanctionefl are for
consumption purposes nnfi not in accordance with the
directions of the Reserve Bank of Tnflia. Therefore;
at

it is rccommended,that Employees Cc-mpora+ive Banks

rpreseutly Classifiofl as Frimnry Co-Oworntfvo Banks fihovld
go out of the purvinw of the Bankimq Regulation Act and
the direct control of flemmrvn Bank of India. Resifiom,
they shoulci not 135'? al1.ow.Pd to ta)?-:9 (3<“}f*(.)Si 12:: from
non-members and to use {he word ‘Bank’, ‘Ranker’ Cr
‘Banking’ as part of their‘nemes.

2.15.13 At the same time, in tho economic welfare

of salary earners, the Employees Comoporntive Banks play
a vital role. Similor y, the working of these societies
Cannot be compared wlth any other Co~oporative Society in
the State. Thereform,,th; Jtate Govnrnmvnt should tone
necessary stefis to protect and promote such societies
by introducing a separate fiivision in the office of the
 115

Registrar of Co~operetive societies For better control

making provisions for recovering loan instalments from
the monthly salary of employees to avoid bad debts and
overdues etc.

2.15.14 In all cases, more tten 50% of the deposits

were from fixed deposits. Fixed fiefnsits are costlier
when compared to savings deposits and current deposits.
Therefore, the banks shoulc try to canvass more deposits
under savings anfi current fleposits schemes.

2.15.15 For 3 banks, the deposit advances ratio was

very low resulting from idle funds. No doubt, his reflects
the inefficiency of nenegement. Either by introfiucing new
schemes of loans end advances or by enhancing the maximum
limits of the existing schemes, the excess funds should
be deployed more effectively.

2.15.16 At present, conducting chitties is not allowed

by the Reserve Bank of India. But there are banks which
conduct chitties with the sane ion of Co-operative
Department. This reflects the contradiction between the
tw Act viz. Co-operative Societies not ene the Banking
Regulation Act. Therefcre, the Reserve flank should take
necessary ections in this regard.
 116

2.15.17 In addition to low ratio of advances to

total funds, holding funds idle and excessive dependence
on borrowed funds, excessive use of funds for administration
and office expenses is found to be another reason for low
profitability in these banks. Adopting innovations in
management like man power planning, merit rating and
efficiency evaluation of staff etc. can solve this problem
to.a good extent.

2.15.18 Regarding the area of operation of Primary

Banks, there exists a wide imbalance. Considering the
position Oi urban banks in Kerala with reference to the
position of similar banks in other states and analysing
the view points expressed by respondents, it is recommended
for the formulation of a national policy by the Reserve
Bank of India regarding the stigulation of area of
operations of Primary Co~operative Banks. while
formulating such a policy, the suggestions made by the
committee on Urban Banks healed by shri. K. Madhava Das
should be considered.

2.15.19 It is seen that many banks lack dynamism

in its working. They he e to improve much in the field
of discharging secondary services and providing better
amenities to customers.
 117

2.15.20 The Primary Co—operativn Banks should be

allowed to invest funds with any Qo—operative Bank they
like. This is because, there is no uniformity in the
interest rates on deposits offered by District Co—operative
Banks in Kerala on deposits from urban banks and other
Erimary Societies.

2.15.21 In the light of views expressed by the

respondents, it is seen that, the present mode of
functioning of the Co-operative Eepartment in the State
is not conducive to the development of these banks. To
improve the efficiency of the department, it should be
sufficiently staffed and compulsory training should be
given to the staff at periodical intervals. In addition,
it is desired to have a separate cell with specially
trained staff in the department solely meant for the
Primary Co—operative Banks coming under dual control.

2.15.22 Amounts written off as bad debts and reserves

created for doubtful debts by the Co—operative Banks are
clearly shown in the Profit and Loss account and Balance
Sheet of these banks. No doubt, this is harmful to the
banks. The awareness of the public regarding bad and
doubtful debts oi will advnrsely affect the
p’LliC confidence bank ard may tohd incréase
the irrecoverable fights ih future. Thwrmfore; it is
should
recommended that CO-operative Bsnkalfollow the Commercial
Banks in the pr0p$rati0n and gnblibetion of final
acccunts.
 119

sfiaatrse - __...III
CENTRAL CO-OPERATIVE BANKS

Introduction :

3.1.1 Central Co-operative Banks, otherwise called

District Co-operative Banks, are leaders of the co­
operative movement in the district. As an important
link between the Apex Co-operative Bank and the primary
co-operative societies, they have to play a vital role
in the prootional and developmental aspects of co­
operative institutions especially at the primary level.
"A strong and sound primary credit structure would lend
strength and stability to the central financing agency"63
They have to direct and supervise the credit and non­
credit societies both in the agricultural and the non­
agricultural sectors. The District Co-operative Banks
"should closely watch the progress in the implementation
of the scheme for reorganisation of primary agricultural
credit societies into viable units, so that, difficul­
ties if any, arising therefrom are looked into and suita­
ble steps taken to overcome them"64.

63 Developmental Role of State and Central Co-operative

Banks - Reserve Bank of India (Agricultural Credit
Department). Bombay 1973 page - 19
64 ibid page - 20
 120

3.1.2 The main objective of Central Co-operative

Banks is to meet the credit requirements of the member
societies. They serve as a balancing centre for adjus­
ting the surplus and deficit in the working capital of
the primary credit societies. For this, they establish
branches at.various centres in the district and create
funds on convenient terms. Besides, they encourage
thrift and collect savings from members and non—members.
They arrange for the supervision and inspection of the
affiliated societies and undertake measures conducive
to co-operative movement in their area of operation65.
3.1.3 Commercial Banks cannot act as a substitute
for Central Banks, because the activities of the former
are mainly on comercial lines and are more security­
oriented. Usually they grant short-term accommodation
only66.

Types of Central Banks :

3.2.1 On the basis of membership provided, Central

Banks can be divided into two categories, viz: the Pure

65 "Theory, History and Practice of Co-operation“

International Publishing House, Meerut 24, 1962 ­
page - 248
66 ibid
 121

Type Central Banks and the Mixed Type Central Banks67.

The Mixed Type Central Bank.has. as its.members, both
primary societies and individuals. On the other hand,
in the Pure Type, only primary societies are allowed
to become members. The advantage of the Pure Type over
the other is that, the principles of co-operation can
be fully satisfied as full attention to affiliated
societies is possible. In Kerala, all the Central Co­
operative Banks are included in the Pure Type as on
30.6.1984.

Central Co-operative Banks in Kerala :

3.3.1 Before the formation of the Kerala State, the
present Kerala State Co-operative Bank was the Apex Co­
operative Bank for Travancore State. For Cochin State,
the Cochin Central Co-operative Bank was the Apex Bank.
The Malabar Co-operative Central Bank, which was affi­
liated to the Madras State Co-operative Bank, was the
Apex Co-operative Bank for Malabar. As a result of the
formation of the Travancore-Cochin State in 1954, the
Travancore Central Co-operative Bank was granted the

67 ibid page - 124

 122

status of Apex Bank and the Cochin Central Co-operative

Bank started functioning as Affiliated District Co­
operative Bank. Its Head Office, then, was at Trichur.

3.3.2 After the formation of the Kerala State, the

Malabar Co-operative Central Bank got affiliated to the
Travancore-Cochin State Co-operative Bank. Till the
formation of the first four District Co-operative Banks
in 1958, there was a two-tier system of co-operative
credit. the Travancore-Cochin State Co-operative Bank
giving loans direct to the primary societies.
3.3.3 As per the recommendations of the Rural Credit
Survey Comittee, in 1958, District Co-operative Banks
were established at Trivandrum, Quilon, Kottayam and
Alleppey by converting the branches of the State Co­
operative Bank functioning at these places. This marked
the beginning of the three-tier structure of the co­
operative movement. Following the re-organisation of
District Co-operative Banks on the basis of Revenue
Districts in 1961, the Cochin Central Co-operative Bank
was bifurcated into Ernakulam District Co-operative Bank
and Trichur District Co—operative Bank.
 123

3.3.4 In May 1963, the Malabar Co-operative

Central Bank was trifurcated, forming the Palghat
District Co-operative Bank, the Cannanore District Co­
operative Bank and the Calicut District Co-operative
Bank. On 31.1.1973 the Idukki District Co-operative
Bank was formed. District Co-operative Banks for
Malappuram, wynad and Pathanamthitta Districts were esta­
blished in 1970, 1982 and 1985 respectively.
3.3.5 As on 30.6.1984 there were 12 District Co­
operative Banks in Kerala of which of had obtained ban­
king licence from the Reserve Bank of India. Since then,
one more District Co-operative Bank was established at
Pathanamthitta, but it has not been included in this
study. The Kasargod District does not have a District
Co-operative Bank and as such, the primary societies
there are functioning under the Cannannore District
Co-operative Bank. All these banks are in class ‘A’
based on Audit Classification (Source - question no. 3
of the interview schedule).

Membership and Share Capital :

3.4.1 The membership of District Co-operative Banks

consists of primary societies, State Government and
 124

Kerala State Co-operative Bank. But till the passing

of the “Kerala Co-operative Societies Act, 1969, banks
like Trivandrum.District Co-operative Bank had a mixed
type of membership - individuals and primary societies.
The Bye-Laws of all the District Co-operative Banks
provide eligibility for admission as member to every
co-operative society working within the area of ope­
ration of the bank. The total membership of all the
12 banks on 30.6.1984 was 4711 as against 4308 on
30.6.1981 for 11 banks. The increase in membership on
30.6.1984 on the basis of 30.6.1981 is 9.35%.
3.4.2 The total paid up share capital of all the
banks on 30.6.1984 was M. 1853.56 lakhs, resulting in an
average of B. 154.46 lakhs. The median value of share
capital as on the above date is worked out to be B. 156.38
lakhs and the range was 3. 91.24 lakhs and B. 210.51
lakhs. Compared to 30.6.1981, the increase in share
capital for eleven banks as on 30.6.1984 is 20.57%
(Source - coputed from Annual Reports). As on 30.6.1981,
there were only 11 District Co-operative Banks.

3.4.3 The data collected in response to question

numbers 7, 8 and 9 in the interview schedule reveal
that the principle of open membership is not satisfied
 125

by any bank. All primary societies working within the

area of operation of the District Co-operative Banks
are eligible for membership in the bank. This does not
mean that all primary societies should become members
of the bank. However, when a primary society needs
financial accomodation from its higher authority, it
should be allowed to become a member, unless otherwise
disqualified. But the data collected reveal that there
were instances where membership was denied to primary
societies, only because they are not agricultural
societies. The arguments advanced by the authorities
of the District Banks in this regard are ­
a) District Co-operative Banks are basically
‘ agricultural societies.
b) If non-agricultural societies like school and
college societies, fishermen's societies,
marketing societies etc. are admitted, the
very nature of District Banks will be lost
and due importance to agriculture cannot be
given.

c) Such societies can have financial assistance

from other sources.
 126

d) If membership is provided to all societies

that apply for it, the agricultural socie­
ties will not have sufficient representation
in the board.

e) Many societies apply for membership only to

have a hand in the management.

3.4.4 It is true that the agricultural sector forms

the back-bone of our economy. But this is not a valid
excuse for denying membership to eligible societies.
By exploring more sources, the bank can cater to the
needs of member societies without injuring the agricultu­
ral societies. A District Co—operative Bank is the apex
society of all primary societies of the district and
not of agricultural societies alone. To give sufficient
representation to agricultural societies in the manage­
ment, the Bye-Laws of the banks can be suitably amended.
However, all needy societies, unless otherwise disqua­
lified, should be admitted as members. The Registrar
of Co-operative Societies and the state Government
should make sure that one of the basic principles of
co-operation-open membership-is not neglected by the
District Co—operative Banks.
 127

Management and Staff :

3.5.1 The General Body of the members is the

ultimate authority in all matters relating to the adw
ministration of the bank. It meets at least once a
year in which the Audit Certificate, the Annual Report
on the working, Final Accounts etc. are considered.
Thus all Central Co-operative Banks in Kerala have a
pyramidal type of administrative set-up and the General
Body forms its base.

3.5.2 The management of the bank vests in a Board

of Directors. The constitution of the Board of Directors
and the number of Directors in the Board vary from bank
to bank. All banks have Government nominees on the Board.
For wynad District Co-operative Bank, all members on the
Board as on 30.6.1984 were Government nominees, as it
was a newly constituted bank. The Trichur District Co­
operative Bank had 3 special invitees on the Board as
on 30.6.1984 in addition to elected and nominated
members. A classification of banks on the basis of
Directors is given in Table 15 on page 128.
3.5.3 In order to streamline the work, all Central
Banks have several sub-committees like Executive Co­
mmittee, Law and Liquidation Committee, Loan Committee,
 128

“HT
Table showing the classification of banks on the
basis of elected and nominated members as
on 30.6.1984
11:I3O
1 CO
3- 01
j TCI: .— C-9
j III-I- i in.1hit
Z 1us.
1 2j iq:any
— -5
Z 1- -‘ —-
— 11.21-—.
" 1.1.
3 ‘- g...
3 .gQ-,
1. ‘1­
I
3

members
Elected ' 2 ' 3 t '4 ,' 5' ',Total
,
' ------ --r ----------- --r ----- --r---—---­

Less I
than I
II rIII II IIr I
I5 .
' '
I . '
I'
— - - - — - --1----.----1---.-—--4----—
S_7 .
' ' " " " - """"""""""'F""""."”"'l"""""f""""""
& 1 1 ? 1 1 ZJXXIIIH 311.111 1&2 1131
7 - 9 . 1 ' 1 . ' 2 ' 4
9 - 11 .I' 5I.
l"'
I ' I. I
'I
I”' 5
— — - - - - --;----r---;---r-----:-----­
'' I" .
1 1 Z C 1 1 11' 1 j I Z 1 TAXI ZZZ Z131
‘ ' ' ' ' ' """'I""""'f""""""""""i"""""'I"""""'
Total ' 1 ' 8 I - ' 2 ' 11
========:..-=-..:==1-:==='===L===:-.:.--..:=.-:=
Source : Data collected in response to question
rumter 10 in.the interview schedule.

Note wynad District Co-operative Bank is not

included in the above table.
 129

Building Committee etc. The members of the sub­

committee are selected by the members of the Board of
Directors from among themselves. The number of members
in such sub-committees varies from bank to bank.

3.5.4 The data collected in response to question

Nos 13 and 14 in the interview schedule reveal that in
all banks the actual number of Board meetings held was
imore than the minimum number as stated in the Bye~Laws
concerned. In addition, there were no instances of
postponement of Board meetings due to the lack of quorum
except in two banks. Even in these two banks, the number
of meetings postponed is less than 5 during the period
of 4 years ending 30.6.1984.

3.5.5 In consultation and with the approval of the

Board or the concerned sub-committee, the Chief Executive
takes the necessary decisions. The designation of Chief
Executive Officer in Central Co-operative Banks in Kerala
is ‘General Manager‘. He is the custodian of the pro­
perties of the bank. His responsibilities include pla­
cing of loan applications of societies before the
Executive Committee or the Board as the case may be,
with his recommendation, to arrange for the holding of
meetings of the Executive Committee or the Board and to
 130

look after the day-to-day administration. He is assis­

ted by two Deputy General Managers in 9 banks 3 Deputy
General Managers in two banks and only one Deputy
General Manager in one bank.

3.5.6 As per the data collected in response to

question no. 5 of the interview schedule the staff of
the District Co—operative Banks in Kerala are divided
into 9 categories. They are :
1. General Manager
2. Deputy General Manager
3. Executive Officer/lnspector of Branches/
Senior Branch Manager
4. Branch Manager/Superintendent/Chief Accountant/
Marketing Officer
5. Senior Accountant/Senior Inspector/Chief Cashier
6. Accountant/Inspector/I Grade Typist
7. Clerk/Cashier/Steno~Typist/Typist/TYDist-cum­
Clerk/Telephone Operator/Telex Operator
8. Record Keeper/Bill Collector/Duffedar/Shroff/
Driver/Caretaker
9. Peon/Watchman/Lift Operator
 131

3.5.7 Salaries and other monetary and non-monetary

benefits to the staff in all the District Co-operative
Banks are as per the agreement signed in the presence of
the Chief Minister of Kerala, Minister of Co-operation,
and Minister of Labour by the representatives of the
employees of the District Co-operative Bank and the
managements of the District Co—operative Banks on 8th
June 1983 with effect from 1st July, 1982. The problem
of labour turnover is not experienced by any bank in
Kerala. The labour turnover ratio i.e.
68
Number of employees replaced X 100 for the 4 years
Average number of employees
ending 30.6.1984 was zero for 7 banks and for the remain­
ing 5 banks it was less than 0.60% (Source --question
no. 19 of interview schedule).
3.5.8 The total number of staff on 30.6.1984 of all
the District Co-operative Banks in Kerala was 2965
resulting in an average of 247 employees per bank inclu­
ding the Chief Executive Officer. Data collected in res­
ponse to question number 15 in the interview schedule
reveals that there exists a healthy and smooth relation­
ship between staff and management.

68 Bhar B.K. ~ Cost Accounting Methods and Problems ­

Academic Publishers, Calcutta 1979 - page ~ 132
 132

3.5.9 Data collected in response to question no. 21

in the interview schedule reveal that the nature and
process of appointment of the staff are more or less
similar in all banks. The vacancies are advertised in
newspapers, and the applicants have to appear for a
written test conducted by an independent outside autho­
rity. Top scorers in the written test are interviewed
by the Interview Board consisting of the members of the
Board of Directors, the Chief Executive Officer being
present as an observer. But only 8 banks publish rank
lists including waiting lists. Three banks do not pub­
lish the waiting list but the interview results are
recorded in the minutes book. Another bank, publishes
the rank list, but does not publish the waiting list.
3.5.10 In order to ensure public confidence in the
appointment of the staff, immediate publication of the
rank list including the waiting list should be insisted
upon. This list should be valid atleast for one year.
Besides, a copy of the rank list including waiting list
should be sent to the Registrar of Co-operative Societies.
3.5.11 Promotion of staff in District Co-operative
Banks is solely based on seniority. Unlike in commer­
cial banks, where promotion test, interview etc. are
 133

conducted, considering the 'C.A.I.I.B.' qualification

and confidential reports, efficiency evaluation and
merit kating are absent in these banks (question no. 20).
As it is the district level authority for all the co-‘
operative societies, it has to be wel1—equipped with
competent staff. For this, there should be development
facilities on the basis of efficiency linked with senio­
rity, but seniority should not be the sole criterion.
In this context, conduct of the written tests and inter­
views, consideration of confidential reports, provision
of giving weightage marks for higher qualifications,
etc. are advisable. At any rate, to protect the morale
of the staff, efficiency should be rewarded sufficiently,
periodical training should be given for different cate­
gories of staff separately on a compulsory basis. The
State Co—operative Bank, in consultation with the
Registrar of Co-operative Societies and the State Gover­
nment, can issue necessary guidelines in this regard.
3.5.12 In the light of views expressed by the
respondents in response to question nos. 15 and 16 in
the interview schedule it is found that, there exists
a smooth and satisfactory relationship among staff,
 134

management and shareholders. Such an atmosphere will,

no doubt, help further development and lead to pros­
perity of these banks. Though the Directors of all
banks participate in deposit mobilisation, the Chief
Executives of 9 banks stated that the active political
background of the Directors stand as a limiting factor
in this regard.
_§9urces of Funds :

3.6.1 Paid-up share capital, reserves and surpluses,

deposits and borrowings are the major sources of funds
of District Co-operative Banks. Details of these as on
30.6.1984 are given in Table-16 on page 135.

3.6.2 The paid—up capital and reserves and surpluses

form the own funds of the banks. These funds, when
compared to deposits and borrowings, are less expensive
and are perfectly at the disposal of the bank. The share
of own funds in total funds on 30.6.1984 varied from 6.19%
to 18.74%. The average percentage of own funds to
total funds on the above date is seen to be 11.1% and
the median value 10.76%. On 30.6.1981, when only 11
District Co-operative Banks were in existence, the total
own funds stood at %. 2,377.61 lakhs while the 5.same
on 30.6.1984 for the same number of banks was/3,121.17. 1akhs_
 135

Details regarding the funds of District Co-operative

Banks

I I I I
=12:=='======-=====’==Z=='?.'===r':====
%. in lakhs

'capital
I' I .II..I,.,.‘­
' '
I

.share
Items ' Totgg as ' Average ' Median ' Minimum. Maximum
' 30.6.1984’ value ' value ' value . value
' Rs. ‘ Rs. ' Rs. ' Rs. . Rs. I

I I I I ,
I­‘
_ _ _ _ __I______l______l__.______I_____

'
______

‘pluses
& sur—. ... .. .. '' '
3 | g
_____I _ _ _ _ __I_____l______I____'_-__

_____I _ _ _ _ __l_____I_____I____;_____
Deposits 119,173.73 :1,597.8 11,643.34 I 215.51 '2,492.21

ings . . . . '
______. _ _ _ _ __._____.________.______;______
8orrow— : 8,067.25 : 672.27 : 291.2 : 97.39 ‘1,311.5
==..‘."..Z='==_====';'===:==.=====.====L==.."L'='
Source : Annual Reports

This shows an increase of %. 743.56 lakhs i.e. 31.27%.

3.6.3 Deposits form the loan's share of the total

funds of the banks. The ratio of deposits to total
funds on 30.6.1984 varied from 23.63% to 88.47% (computed
from Annual Reports).
 135

The mean value is 61.49% and median value

62.17%. The total deposits on 30.6.1984 was %.19,l73.73
lakhs as against %.12,899.53 lakhs on 30.6.1981. There
were only 11 banks on 30.6.1981. Thus, for the 11
banks, the total deposits increased by 46.97% as on
30.6.1984 when compared to 30.6.1981.

3.6.4 Broadly, the deposits accepted by District

Co-operative Banks can be divided into Current Accounts,
Savings Bank Deposits and Term Deposits. They accept
deposits from members and non—members, individuals and
firms. Deposits from members i.e. primary societies
are a statutory requirement for the primary societies.
More than 50% of the total deposits of three banks come
from non~members (computed from Annual Reports). But
for others, deposits from societies overweigh the depo­
sits from non-members. when compared to Fixed Deposits
and Savings Bank Deposits, Current Deposits are cheaper.
But for all banks, Current Deposits form less than 20%
of the total deposits. Taking simple arithmetic mean
and median as measures of central tendencies, the ratios
of Fixed Deposits, Savings Deposits and Current Deposits
to total deposits together with the share of non-members
i.e. individuals in total deposits given in Table-17
on page 137.
 136

The mean value is 61.49% and median value

62.17%. The total deposits on 30.6.1984 was %.19,173.73
lakhs as against %.l2,899.53 lakhs on 30.6.1981. There
were only 11 banks on 30.6.1981. Thus, for the 11
banks, the total deposits increased by 46.97% as on
30.6.1984 when compared to 30.6.1981.

3.6.4 Broadly, the deposits accepted by District

Co—operative Banks can be divided into Current Accounts,
Savings Bank Deposits and Term Deposits. They accept
deposits from members and non-members, individuals and
firms. Deposits from members i.e. primary societies
are a statutory requirement for the primary societies.
More than 50% of the total deposits of three banks come
from non-members (computed from Annual Reports). But
ifor others, deposits from societies overweigh the depo­
sits from non-members. when compared to Fixed Deposits
and Savings Bank Deposits, Current Deposits are cheaper.
But for all banks, Current Deposits form less than 20%
of the total deposits. Taking simple arithmetic mean
and median as measures of central tendencies, the ratios
of Fixed Deposits, Savings Deposits and Current Deposits
to total deposits together with the share of non—members
i.e. individuals in total deposits given in Tab1e—17
on page 137.
 137

jjjjgo
Tabie showing Central Tendencies and Range of

T“ TIsimple
T Tjifijjjjj
various components of deposits

' '
pan-Q-cannon-u§t1.o—Q-¢:u—.__...*,} 16.1 ‘

Particulars :arithme— : Median ' Laigest 'SmilleSt

xShare
— of¢ fixed
‘tic
. % x —' '—
mean
. %' . Va
' %ue ,va
::
' % n
ue

total
¢Share deposits
G of$ savings
® D '— ' ‘ , ,
deposits in ' 44.25 ' 43.59 . 61.14 , 30.74
',, E
II
total deposits ' ‘ , ,
deposits in ' 29.76 ' 27.26 , 46.69 . 19.37
I

- I
---I
Share of current ' ‘ , ,
. . . _ . _ . - -'- - - - - r - _ - - r - - - _ u - _ _ ­
total deposits ' ' , , --­
deposits in ' 10.80 ' 11.34 , 17.89 . 2.33
Share
viduals i.e. ' of
41.96indi- ' ' , ,,25.10
' 40.72 . 53.40
I

non-members
total depositsin' ' '' ,, ,,
Source : Absolute figures from Annual Reports

3.6.5 Borrowings form the next important source of

funds for District Co-operative Banks. Though costlier
when compared to own funds and deposits, all the 12
banks had borrowings outstanding on 30.6.1984. The ratio
 138

of borrowings to total funds varied from 3.01% to

63.85%. The average value based on simple arithmetic
mean is worked out to be 28.95% and median value 25.29%.
The borrowings were from the Reserve Bank of India,
Kerala State Co—operative Bank and Government of Kerala
to meet the long—term, medium-term and short-term credit
requirements.

3.6.6 Based on working capital, the banks are cla­

ssified as under. (The term. working capital is used in
the same sense as is used in chapter II)

capital

Classes (b. in lakhs) ' Number of Banks

I

Less than 1000 , 1

1 f Z 1 1 1 X i 1 K X OD Z r 1 9" 1 1 1' X 1 I 1 1 1

1000 — 1500 . Nil

XZ1Z11:1X112IrIIXZIXI1I11
1500 - 2000 , N11
1 1 1 1 1 X 1 1 T 1 X 1 1 r I- CC Hi I 1 C0 T I I 1 I

2000 - 2500 , 4
Z Z Z i 1 1 1 3 3 f Z 2 I r U9 1 1 Z 1 1 3 1 -' 1 1
2500 - 3000 , 5
X j 1 Z 1 1 X j 1 2 1 do 1 r I 1 I Z 3 1 Z 1 I X 1
3000 - 3500 , 2
j X 1 1 1 fi Z Z X Z Z I C0 II’ III f X 1 X I Z 1 1 1 1

Total . 12
---------~---r---"-f"--*­
Z 2'. = Z I -'7-’. .7. = L: I 2.‘ = = F 1: :2 Z Z Z Z = :3 Z Z 3

Source : Data collected in response to question

no. 6 in the interview schedule.
 139

Employment of Funds, Profit and Profitability :

3.7.1 The term employment of funds, refers to the

way in which a Central Bank applies its funds in the
form of statutory cash reserves, investments, loans and
advances, fixed assets etc. Like any other co-operative
organisation, Central Banks are non-profit—oriented
institutions. But, at the same time, a reasonable excess
of income over expenditure is necessary for its very
existence. This calls for a careful and rational deploy­
ment of funds. This is especially so for District Co­
operative Banks whose main task is the co-ordination and
control of the activities of Primary Co-operative Societies
in the state .
3.7.2 Funds held in the form of statutory cash and
bank reserves and fixed assets do not bring any revenue
to the bank, but, they are necessary. Using arithmetic
mean, 22% of the total funds, of the 12 banks as on
30.6.1984 were held in the form of cash and bank balances.
Median value for the same number of banks as on the above
date was 19.83%. Investments in fixed assets on 30.6.1984
for the 12 banks were 0.67% of the total funds and the
median value stood at 0.59% (computed from Annual Reports).
 140

3.7.3 Investment in loans and advances constitute

the major revenue earner for any bank. As on 30.6.1984,
using arithmetic mean, for the 12 banks, 77.45% of
the total funds were utilised for lending. The median
value of it was 76.35%. The total loans and advances
outstanding on 30.6.1984 for the 12 banks amounted to
B. 23,129.S lakhs resulting in an average of}:927.46. lakhs

3.7.4 An analysis of the structure of loans and

advances outstanding on 30.6.1984 in the 12 District Co­
operative Banks reveals that the very old concept of
security-oriented lending still prevails in 4 banks. In
3 banks, all the loans and advances outstanding were fully
secured either by government and other approved securi­
ties or by other tangible securities or by both. In
another bank, secured loans amounted to 99.54% of the
total loans outstanding. Details of 3 bankswere not
available. In another 3 banks, no secured loans were out­
standing as on the above date. In the remaining 2 banks
secured loans constituted only less than 10% of the total
loans outstanding.
3.7.5 It is seen that all District Co-operative Banks
had provided loans and advances to non-members. The
ratio of loans outstanding from non-members to total loans
outstanding as on 30.6.1984 varied from 0.49% to 46.90%.
 141

The median value stood at 6.24% ignoring the position

in 3 banks from which the required data were not availaw
ble. The data collected reveal that District Co­
operative Banks provide a variety of loans to non­
members i.e. individuals and include gold loans, over­
drafts, industrial credits, vehicle loans etc.
This is not a desirable tendency, as far as Central
Banks are concerned, for four reasons :

1) In the pyramidal structure of the co-operative

credit system, the District Co-operative Banks
are expected to co-ordinate and control the
working of primary societies in the district
concerned69.

2) Right of loans, according to the principles of

co-operation, is for members only7o.

3) Conducting of banking business by the District

Co-operative Banks will result in unhealthy
competition between co—operatives71.

69 "Urban Co-operative Banks - New Lending Policy &

Problems" paper presented by Sri. E.P. Sreekumar
in the regional seminar of Urban Co—operative Banks
conducted by the Kerala Urban Co-operative Banks
Federation at Tripunithura - July 1986 page - 15.
70 Ibid
71 Ibid
 142

4) When, these banks concentrate their atten­

tion on the conduct of banking business, it
may have an adverse effect on the principal
objectives of these banks.

3.7.6 Therefore, it is found that, the District

Co-operative Banks should stop providing loans to non­
members and also stop branch banking. Instead, the
funds employed in this line should be utilised for co­
ordinating and directing the activities of primary co­
operative societies.
3.7.7 when the own funds of primary banks are not
enough to cater to the needs of the priority sector,
they get financial accommodation from District Co­
operative Banks. On such financial assistance, the
District Banks charge 15% to 17% interest. But at the
same time, when Primary Banks‘ lendings are in accor­
dance with the instructions of the Reserve.Bank of indie,
they have to lend even at 14%. This prevents the
Primary Banks from providing gold loans to the priority
sector. Therefore, the District Co-operative Banks
should be given necessary directions by the Co-operative
Department and the Reserve Bank of India on lending
rates to Primary Banks.
 143

3.7.8 Another feature of the lending by the

District Co-operative Banks is that a lion's share
of the loans and advances is short-term loans. In 9
banks, short-term loans constitute more than 90% of
the total lendings. The shares of short-term, mdium­
term and long-term loans in the total loans outstan­
ding as on 30.6.1984 are given below :

Table showing the shares of Short~Term, Medium-Term and

Long-Term Loans in the total loans outstanding as on
30.6.1984

- - _I -I_“e%:‘;:;TemI
- - -' . . . _ . _ - LLE33;§“”"‘“
. _ . . - -' . . . . -­
Less than 10% : Nil : N11 : 9

II
So; I-.o'36%' " '; " ' 'N£1' ' ' 1 ' ' Z ' ' '; ' ‘N21’ "
30;. ' '; ‘ " 11;; ' ' i " “ 1; " ‘ 1' "
;.'5s%' '“ 1 ' “ ' " L " ‘Na’ ' '3 ' "
So; Zo"s6%' ' "; ' " ' 3 ' ' " L " "N31" ' '1' ‘N31’ "
3.; ;.‘7a%' ' ";' ‘ ‘ 3 “ ’ “ L " -N;l- " “;' ‘N1.’ "
3o«2 Zo'e6%' ' '- ' ' " E ' ' ' - ' ‘N11’ ' "- ' "Nil" "
.
n

Source : Compiled from absolute figures in Annual

Reports of the banks.
 144

3.7.9 Profits and profitability cannot explain the

efficiency or otherwise of a co-operative institution
as they are not business organisations. Yet, commercial
efficiency within the ambit of the philosophy of co­
operation is necessary for these institutions to make
their roles significant in the economic development
of the land and in furthering the principles and pra­
ctice of co—operation.

3.7.10 Taking the absolute figures of profi , as

disclosed by the profit and loss account, based on
1980~'8l, in 1983-'84, 5 banks showed an increase in
profit. On the other hand another 5 banks showed a de­
crease, one bank was not in existence in 1980-‘81 and
the amount of profit of one bank for the year 1980-'81
was not available. Taking the ratio of net profit to
total funds i.e.Net profit
x 100, it is seen that
Total funds
for four banks, the ratio shows an increase and for
6 banks, a decrease in the year 1983-'84 when compared
to 1980-'81. The amount of profit of one bank for the
year 1980-'81 was not available. However for both the
periods, for all the banks, the ratio was below 0.80%.
The lowest ratio in 1980-'81 was 0.02% while it was
0.005% in 1983-'84. This means that profitability was
very poor in these banks (computed from Annual Reports).
 145

3.7.11 An analysis of the income and expenses for

the years 1980-'81 to 1983-'84 reveals that, income
from interest received on loans and advances constitute
the lion's share of the total income of all banks. It
varies from 68.7% to 95.91% with a median value of 84.83%.
But when compared to 1980-'81 increase in this item in
the year 1983-'84 varies from 12.63% to 87.37% with a
median value of 57.38%.

3.7.12 In the total expenses of banks, the share of

interest paid on deposits, though not as significant as
that of interest received to total income, varies from
47.76% to 69.11% with a median value of 59.51%. It is
important to note that, the increase in interest received
is not in proportion to the increase in interest paid.
In 8 banks, the rate of growth in interest paid overweigh
the rate of growth in interest receivedk For 2 banks,
on the other hand, the rate of growth/fnterest received
overweigh the rate of growth in interest paid. Details
are given in Table~20 on page 146.

3.7.13 Another reason for low profit in these banks

is the increase in administration and establishment
expenses. Of the total expenses, administration and es­
tablishment expenses account for more than 20% in 9 banks.
 jjjj
Table showing increase in interest received and
interest paid in 1983—'84 compared to 1980—‘81

Serial , Percentage increase.in Percentage increase

I

Number , interest received on in interest paid on

I

of , loans and advances in , deposits in 19833842

I

banks , 1983-84-base year 1980-81 base year 1980-'81

1 ' 75.05
--_-L._...........__....._._­
' 53.77
I

_2 - _ - 'L .12.63
. . . . _ . . _ . _ -' --7.08
_ _ _ - L _ . . _ _ _ _ _ _ . _ _ -¢ . . . . _ _ _ _ . _ ­
3 ' 73.75 ' 68.87
_.....__.__

- _4_ _'L72.51
. . _ . . _ . . . . _' _73.62
_ L - - L . _ _ _ . _ . . _ _ . - -- _ . . . . _ . _ _ _ ­
5 ' 61.26 ' 77.42
-- . . _ _ i . . _ . _ ­
- _ _ _ L _ _ _ _ _ . . _ . _ _ - _- . _ . . _ _ _ . - - _
6 ' not applicable ' not applicable
- -'7
- - L'. .24.98
_ . . _ _ . . _ . -' -v53.83
_ - _ _ L _ . _ . _ _ _ _ _ _ _ - -~ . . _ . _ . _ _ _ _ _

- _8 _ - 'L _53.49
. _ . _ _ _ _ . .'_ -64.31
_____..__-_

- -9_ _'L 82.30

_ . . _ _ . . . _ . '. _99.81
_I _ _ _ . . _ . _ . - ­
-- . . . _ _ . _ _ . _ ­
10 ' Data not available ' Data not available
11 ' 48.63 ' 60.40
_ - - - L _ _ _ . . . . . . _ _ _ -- _ . _ . . . . . _ - ­

- 12
_ _ - L'_ _87.37
_ . _ . _ . _ _ '_ -97.28
_ _ - - L _ . _ _ . _ . . . . _ _ _- . . . . . _ . _ . - _
_- . . _ . _ . . . _ _ ­
Source : Compiled from absolute figures in the
Annual Reports of the banks.
 147

In 2 banks they come only to less than 10% and in

another bank to 17.47%. when compared to 1980-'81,
the increase in this item of expenditure in 1983~'84
shows an undesirable trend. In 2 banks the increase
exmeds 100%. The range was from 50.46% to 139.64%.
The details regarding administration and establishment
expenses shown in Table-21 on page 148 clearly point
to the main factor contributing to low profitability.
3.7.14 Expenses other than for administration and
establishment and interest paid on deposits showed an
increase in 1983—'84 when compared to 1980-'81. The
rate of increase varies from 25.04% to 250.72%. The
median value is found to be 74.6%. The data for two
banks were not available. But for 8 banks, this in­
crease has not affected the profits, because for them,
other income,that is income other than interest recei­
ved on loans and advances, has also increased during
the period and the increase was more than the increase
in the other expenses. The increase in other income:
of one bank was less than that of the increase in other
expenses. Another bank was not in existence in 1980-'81.

3.7.15 In the light of above, it can be inferred

that, the operational and financial management of
District Co-operative Banks has to improve a lot.
 148

Table showing the share of administration expenses

to total expenses and rate of increase in 1983-‘84­
base year 198O-'81
: c—-
03 —b11 -Q
n—nun
1: Xn— .. ..can
—--I j o o..n
-- Iu-
wenot
2 1Q:
1- ¢o- -1 —-
--v av uni -—
9-v as
nnv upon
—.- ———uI1-I-I
7 —-v j 12ozbut
it man u—~1. n—n
Inn: 4:q—
hi i1n—
;­
Serial ' Increase in administration : Administration
Number ' and establishment expenses ' expenses as percentage
of ' in 1983-'84 5 base year ' of total expenses
banks : 1980-'81 L 1983-’84
' E " ": " ' " ' ' s7:ss% ' ” ‘ " ” ' L ' ' ' ’22.Zs ' “ ‘ ' ' '
_ 3 u m: - . . - u g5:4g% ~ - - - — - L - - - -2;.;0 “ “ - . - ­
- 3 - _:‘ - _ - -139:62% - - * ‘ . fl L ’ - - -1;.E7 ~ H H . - ­
'Z’fi ' ' " " '5£d% ’ ' ' ' "'L""'££1 ‘ ' ’ ' "
'E"'f"'3J£&éé""'L""E31 ' ' " ' ’”
- g - h’. - no; En-e;istenoe- in“ n ’ - - - - g.g1 . - — . - ­
____L____?%fi%__,_,L _ _ _ _ , _ _ _ _ _ __
7 : 50.46% L 20.58
'5'] ' ' " ' '%Bh ' ' ' " "'L'"'31& ' ” ’ ' "'
'§']’"""'&b& ” " ' ' "L‘"'3&& ' ' ' " "
'16 ' ":" ' ' 5aZa"nSt"a§aZ1;b1e' " L ' ' " "22.E1 ' " " ' ' ”
"11 " "; " ' ' ' ' EafsZ% ' ' ' ' " " L ” ' ' "2E.3a ' ' " ' ' '
-13 - -1‘ - H — “1;9:6g% . F _ ‘ - - L - - * -26.g8 - . . - fl ­

Source : Compiled from absolute figures in the

Annucflo rtfi
 149

If the present trend in the working of these banks is

allowed to continue, they will not be in a position to
fulfil their responsibilities to the co-operative
credit structure. To overcome the imbalance between
the interest paid and interest received, the lending
pattern as well as the deposit schemes of these banks
should be changed considerably. During the period of
study in all banks, more than 50% of loans were short~
term loans, and long-term loans in all banks except
three, formed less than 10%. At the same time, on an
average 44% of the deposits are fixed deposits. To pro­
vide short-term agricultural loans, as far as possible,
fixed deposits should not be used. The National Board
of Agriculture and Rural Development (NABARD) has instru­
cted the District Co-operative Banks to use at least 50%
of loanable resources to provide short-term agricultural
credit72. This is another blow on the commercial effi­
ciency of these banks.
3.7.16 The District Co-operative Banks are leaders
of the primary societies in the district concerned. This
means, that they should not compete with the Primary

72” Ibid page 16

 150

Banks and Societies. District Co-operative Banks are

not meant for branch banking and for this reason they
need not obtain a licence from the Reserve Bank of
India for opening branches73. But the data collected in
response to question no. 4, regarding the number of bra­
nches of each bank and their activities, reveal that,
these banks are conducting full banking business. On
an average, 42% of the deposits and 12% of the loans
are with non-members. As on 30.6.1984, the average
number of branches per bank stood at 23.

3.7.17 The rate of growth in the establishment and

administration expenses requires effective attention.
Manpower planning in this context can do much. Manpower
planning in this context refers to putting the right
number and right kind of people in the right place.
Personnel management, remains yet unknown to the co­
operative management as a whole. The number and variety
of primary societies in each district and numerous and
varied activities of these banks call for efficient and
adequate staff and management.

3.7.18 In the democratic form of management, there

is no guarantee that the Board of Directors is well­
equiped with competent managerial personnel. This is

73 Ibid page 16
 151

especially so when the elections are conducted on a

political party basis. The data collected in response
to question no. 12 in the interview schedule reveals
that all the Directors are elected on political party
basis. As on 30.6.1984, the total number of Directors
stood at 143 including 3 special invitees in one bank.
The educational background of 49 Directors were not
available in response to question no. 11 in the inter­
view schedule. Of the remaining, 62%.of the Directors
possess just S.S.L,C. or lower educational qualification.
The challenges of modern day definitely calls for pro­
fessionalisation of management, without injuring its
democratic nature. Similarly there should be provision
to provide compulsory‘training to Directors elected for
the first time.
3.7.19 The concept of merit rating and efficiency
evaluation of staff is not practiced by any of these
banks. Promotion of staff is solely based on seniority.
This is quite unscientific. There should be development
facilities for staff on the basis of efficiency cum
seniority, but seniority should not be the sole criterion.
Quantitative or qualitative insufficiency of staff will
lead to poor quality of work and conspicuous economic
waste.
 152

3.7.20 In the operational aspects, it is seen

that, the District Co-operative Banks need do only
nominal banking business and not elaborate branch ban­
king. It should allow all needy primary societies to
make use of its assistance by following the principle
of open membership. To obtain commercial efficiency,
these banks can discharge a number of secondary services
like safe deposit locker facilities, collection and pay­
ment of funds etc. Besides, the Annual Reports of all
banks reveal that their role as intermediate financing
agency has yet to develop much, for example disburse­
ments of medium term loans under Agricultural Refinance
Development Corporation scheme (A.R.D.C.), Integrated
Rural Development Programme (I.R.D.P.) etc. have to be
increased.

Dividend :

3.8.1 No uniformity is found among District Co­

operative Banks regarding the declaration and payment
of dividend(data collected in response to question no. 22
in the interview schedule} The average rate of dividend
declared, for the four years ending 30.6.1984, for
3 banks was 6.25% and 5.25% respectively: 4 banks
gave only a nominal rate of dividend i.e. 2% or below:
3 banks have not declared any dividend for the last
 153

4 years; for another bank; the average rate was 3.5%.

The details in this respect were not available from
one bank.

General Body Meetings :

3.9.1 A vigilant General Body is a basic necessity

for efficient management. This is especially so in the
case of District Co-operative Banks, as their members
are societies. Data collected in response to question
numbers 23 and 24 in the interview schedule give an
unpleasant picture in this regard. Taking the average
for the four years ending 30.6.1984, percentage strength
i.e., number of members
total number attended_
of members X 100 15. iven
g‘ i in
Table-22.
T A B L E - gg

jjjjj1ijOIQ1.1jjjj¢Injja-—r-\;'—nau¢i
:,j}_'__j1j.Z.;:.j.&yjQQ;.jj1-nnaquuolw-$-Z
1 Class
1 1 j 1' Number of banks
3 **Lj‘-figfl-THZ
20% - 30% ' 1
— 30%-40% ' 3
40% - 50% ' 4
m — — Q u — — — — -u--‘U--CI--'---'--I’-'—"
_..._.__._—L——-—-——-—-­
. _ . . 50%
. . _ . . _—
—L60%
- - - - '—
N11
----——
6O%“7O3o ' 2
._..._.————L-—-------—­
70% - 80% ' 2
Total ' 12
— — — — — - — — — -c-L----r----'--"""‘*
.__._1, -nu“ ¥°--..::::======:.-..=
=-:-}——=.j:n-xiii!-"1'
Source : Data collected in response to question
no. 23 in the interview schedule.
 154

3.9.2 From the above, it can be seen that, the

average strength is 49.17%. This shows the lack of
interest of the Board of Directors of the primary so­
cieties in the working of the District Couoperative
Bank, because elected representatives from Directors
of the affiliated primary societies constitute the
General Body of District Co-operative Banks. The mem­
bers who attend the meeting are provided with refresh~
ments, and very often gifts like pens, calendars,
diaries, umbrellas, etc. Therefore it is felt that atten­
dence and active performance in General Body meeting
should be made compulsory for the members of the District
Co—operative Banks. Absence at such meetings should be
a disqualification for Directorship in a primary society.
Besides, to educate members about the rights, duties and
responsibilities of members, the District Co—operative
Banks have to take a lot of measures like, giving them
training, conducting seminars, publishing literature etc.
3.9.3 In the light of views expressed by respondents
in response to question numbers 26 and 27 in the inter­
view schedule, it is learnt that all District Co-operative
Banks conduct conferences and training programmes at
periodical intervals. But all of them admitted that
 155

they have to do much more in this regard. Every bank

has a library of its own. The number of books in each
library, according to data collected in response to
question no. 27 varies from 25 to 2100. The average
number of books per bank using simple arithmetic mean
is worked out to be 593 and median value was 500 as
on 30.6.1984. All respondents were unanimous that the
libraries are not used by the staff. This is not a
good indication. The banks should take measures to
improve the library, its working and its use.
Conclusions and Recommendations :

3.10.1 All primary societies working within the area

of operations of District Co-operative Banks, are eligi­
ble to become members in the bank, unless otherwise
disqualified. This does not mean that all primary so­
cieties should get affiliated to it. But, when a primary
society applies for affiliation, and if membership is
denied, it is the violation of a basic principle of co­
operation-viz. ‘Open Membership‘. It is seen that
no District Co-operative Bank in Kerala observes this
principle. It is the district level leader of all co­
operative societies and not of agricultural societies
alone. To safeguard the interests and representation
 156

in the Board of Management of agricultural societies,

the bank can make suitable amendments in the Bye-Laws.
However eligible applicants should not be denied mem­
bership. The Registrar of Co-operative Societies and
the State Government should pay serious attention in
this regard to see that one of the principal tenets of
co-operation is not neglected by the district level_
leaders of primary societies.
3.10.2 The nature and process of appointing the
members of the staff are more or less similar in all
banks. But. however, regarding the publication of list
of selected candidates, uniformity does not exist. In
order to ensure public confidence, immediate publica­
tion of the rank list including waiting list should be
insisted upon. This list should be valid at least for
one year. Besides, a copy of the rank list including
waiting list should be sent to-the Registrar of Co­
operative Societies.

3.10.3 Merit rating and efficiency evaluation of

staff is yet unknown to all District Co-operative Banks.
Seniority should not be the sole criterion for grading
the staff. At present, in all banks, promotions are
based on seniority only. To protect and improve the
 157

morale of the staff, efficiency should be rewarded

sufficiently. For this, a system of merit rating and
efficiency evaluation should be implemented in all
banks. The State Co-operative dank, the Co—operative
Department and the State Government can issue nece­
ssary guidelines in this regard.
3.10.4 The very old concept of security-oriented
lending still prevails in 5 banks. Besides, all Dist­
rict Co—operative Banks provide loans and advances to
non—members. This is not a sound tendency and hence
should be given up. Their primary duty is to act as
friend, philosopher and guide to the primary societies
and to co-ordinate and control their activities. Instead,
they are engaged in elaborate branch banking. when
branches of Primary Banks, District Banks and primary
societies function in the same locality with differ­
ences in rates of interest on both deposits and advances,
it will lead to unhealthy competition among co-operatives.
Therefore, the District Co-operative Banks should con­
centrate on other activities and not on elaborate
banking business.

3.10.5 To enable the Primary Banks to follow Prio­

rity-oriented lending, the District Co-operative Banks
 158

should reset the rates of interest on lendings to

Primary Banks based on the purpose of such lendings.

3.10.6 The net profit ratios of all District Co­

operative Banks are very low. Still worse is that for
50% of the banks, the ratio tends to decrease. This is
partly due to the imbalance between the interest paid
and interest received and partly due to the sky rocke­
ting increase in administration and establishment ex­
penses. Effective planning in lending and mobilisation
of deposits can solve the former. Introduction of pro­
fessionalism in management, manpower planning, merit
rating and efficiency evaluation of staff etc. are
suggested to remedy the latter.
3.10.7 In the operational aspects of District Co­
operative Banks, it is seen that, it need do only
nominal banking business. To obtain commercial effici­
ency, it can offer more secondary services like safe
deposit locker facilities, collection and payment of
funds etc. Above, all, they have to play a more sig­
nificant role as an intermediate financing agency.
3.10.8 Member's participation in the working of the
bank and General Body Meetings has to improve much.
Therefore, the attendance and active performance in the
 159

General Body meetings of the District Co—operative

Banks should be made compulsory. Besides, the Dist­
rict Co-operative Banks should take measures to edu­
cate its members in this regard.
3.10.9 To educate and improve its members, staff
and public on co-operation, it has to do much by con­
ducting training, refresher courses, seminars, work
shops etc. The proper maintenance of a good library
is also desirable.

ICC.
 160

‘H—”—§
CHAPTER - ;_y_
STATE C0-OPERATIVE BANK

Introduction :

4.1.1 The State Co-operative Bank is the Apex Bank

in the co-operative credit structure of a state. It is
the final link between the individual members of the
small scattered Primary Societies on the one hand and
the general money market, the Reserve Bank of India
and the Central Banking Authority of the country on the
other74. It has to co-ordinate and guide the working
of the Central Banks and to arrange financial accommo~
dation for them. Besides it has the responsibility of
ensuring that the defects and weaknesses pointed out by
the Reserve Bank of India in its inspection reports on
Central Co-operative Banks and Urban Banks are remedied
and that suggestions for development are carried out.
As it is placed at the top of co-operative credit stru—
cture in a state, it has to be in close and constant

74 R.D. Bedi - Theory, History and Practices of Co­

operation International Publishing House, Meerut 24,
edn. '62 Page - 147
 161

touch with the other co-operative societies in the

state.
4.1.2 The difference between a District Co-operative,
Bank and a State Co-operative Bank is one of degree
and not of kind75. Both are organised to facilitate
the operation of affiliated units. They provide a co­
mmon platform for the discussions of co-operative pro­
blems and act as a mouthpiece of the movement in the state.
In the federal structure of the co—operative movement,
a State Co-operative Bank has advisory and supervisory
functions but no administrative functions.
Origin and Growth :

4.2.1 The Co-operative Societies Act, 1904, did not

favour the formation of unions and federations of the
co-operative societies. But the Co-operative Societies
Act, 1912, has facilitated the formation of higher fe­
deral bodies and institutions. "The need for establish­

. 76
ment of an Apex Co-operative Bank in each state was
highly felt by the Maclagan Committee for the first time" .

75 Ibid Page - 211

76 "State Co-operative Banks in India" by Dinabandhu
Mahal published in the Co-operator Vol. XXII No: 21
May, 1, 1985 Page - 611
 162

4.2.2 In this line, the Bombay Co-operative Bank

was the first bank in India which was registered on
11th October 1911 and to which some Central Banks and
urban credit societies were affiliated. Next in the
line were The Bombay Provincial Bank (1920). The Pro­
vincial Bank of Central Provinces (1912), Orissa Pro—
vincial Bank (1914), The Bengal Provincial Bank (1920)
etc77.

4.2.3 At the end of June 1920 there were 7 provincial

banks (some in the name of Central Bank) in the country
with a total membership of 3830 out of which 1830 were
societies as members78, As on 30th June 1929, the number
of banks was 10 and total membership stood at 20568 out
of which the membership of individuals was only 20079.
As the agriculturists could not repay their loans, the
economic depression affected the provincial banks ad­
versely. But the second world War and the resultant
inflation gave an impetus to the development of these
banks. Though the partition of India after independence
gave a serious blow to the provincial banks, the number

77 Ibid
78 Ibid
79 Ibid
 163

increased to 14 as on 30.6.19508O. “An analysis of

the working of these banks states that the financial
position of most of the banks was weak and that some
of the banks that existed in Madhya Pradesh and
Hyderabad were not following the principles of co­
operation. The position of 'overdues' was very high in
the case of almost all provincial banks“81. The banks
at present working as ‘State Co-operative Banks‘ are
the former Provincial Co-operative Banks.

4.2.4 The informal conference on rural finance held

in 1951 by the Reserve Bank had recommended the esta­
blishment of Apex Banks in the states where there was no
Apex Bank. At the beginning of the First Five Year Plan,
there were 15 State Co-operative Banks in India with
127 branches including head offices and the total mem­
bership stood at 2093282. During the period from 1955-56
to 1960-61 many steps were undertaken to establish one
Apex Bank in every state by amalgamating a number of
State Co-operative Banks or provincial co-operative banks
operating in a state. The following table reveals the

80 Ibid
81 Ibid
82 Ibid
 164

gradual but steady growth of Apex Banks in India,

both in number and in size.

T A B L E — 2;

Y‘ . c' Number
—oftTotal
'.
I' ' . Iavailable
I
Number of State
ear : O ggfiig Ive : Branches , membershlp
-. _. — - p. _ . — m ~ - . .. -. — _ . . _ .. L _ . - . - ..
1950 ' 15 ' 127 , 20932
.. _ — _ ...' . _ — — — — _ .. ... _ _ . . _ _ L. _ _ _ . .. .­
1960 ' 21 ' 119 I not
1 1 T T 1. f 1 1 T T ? X i J 1 T Z 1 1 I F X j 1 i 1 f
1966 I 22 I 135 : avagizble
1 1 T j J i 1 1 1 Z Z 1 O9 1106-. 1 1 T 1 Z 3 r 1 X 1 T K L
1975 I 26 : 264 : avafifgble
X I T X 1' 1 ? 1 Z X 1 Z 3 1. T ? Z X 1 T r : Z Z 1 X I
1982 I 27 I 428 ' 25604
=- "Z 1: =''- d =3 1 = :3 = Z 3.". .7 =' J; :3 Z = Z "'—" = :7 Z "-1 1: :3

As on 30th June 1985, there were 28 State Co­

operative Banks in the country with a total number of
474 offices83.

83 "The Co-operator" vol. ARIES am. 7 1st October 1985

Page — 137
 165

The Kerala State Co-operative Bank Ltd :

4.3.1 The Apex Co—operative Bank in Kerala is the

Kerala State Co-operative Bank Ltd. Its Registered
Office is at M.G. Road, Trivandrum, with three Re­
gional Offices functioning at Ernakulam, Calicut and
Trivandrum. As on 30.6.1984 it had eleven branches.

4.3.2 The Bank was registered on 23rd November 1915

as “The Trivandrum Central Co-operative Bank" which was
the first society organised under Travancore Co-operative
Societies Act, with a capital of one lakh rupees con­
sisting of 1000 shares of 100 rupees each, of which 500
shares were reserved for primary societies. Thereafter
the Bank underwent many changes. In 1943 the Bank came
to be known as "Travancore Central Co-operative Bank"
and in 1954 it was converted into the “Travancore-Cochin
State Co-operative Bank". In 1956, in tune with the
reorganisation of states, the Bank also was reorganised
and the 'Travancore-Cochin State Co-operative Bank‘ was
converted into the 'Kerala State Co-operative Bank‘
with effect from 1st November, 1956. The Bank has since
been functioning as the Apex Bank for the State of
Kerala.
 166

4.3.3 The Kerala State Couoperative Bank is the

chief iinancing agency and the balancing centre of
resources of the entire co~operative credit structure
in the state. All the 13 District Co-operative Banks
in the State are affiliated to-this Bank. It is a
scheduled bank since July 1966 and was issued the ban­
king licence under section 22 of the Banking Regulation
Act 1949, in April 1972. Being a co-operative organisa­
tion, the main object of the Bank is the promotion of
economic interests of its members as well as public in­
terest in accordance with co—operative principles. To
fall in line with the above objective, the Bank is
doing banking business as well as lending to affiliated
institutions within the framework of rules and regula­
tions stipulated by the Reserve Bank of India84.

Objects :
4.4.1 The important objects ofi the bank as stated
in its Bye—Laws are as follows :

1. to serve as the Apex Co-operative Bank for

the State of Kerala.

84 "A brief note on the working of The Kerala State

Co—operative Bank Ltd. published by the same Bank
Page — 2 edn. 1983
 167

2. to promote the economic interests of the

members of the bank uséiinterests of the public
in accordance with co-operative principles.
3. to finance District Co-operative Banks, state
level co—operative institutions, companies
registered under the Cbmpanies Act, Statutory
Corporations, Partnership Firms, Joint Hindu
Family Concerns, sole Proprietorship Concerns
and individuals.

to raise funds from members and non-members.

to open branches at suitable places with the

permission of the Registrar.

to accept deposits and carry on general business

of banking.

to receive moneys from state Government for

purchasing shares in co-operative institutions.
to receive for safe custody securities,
ornaments and valuables.

to arrange for the supervision and inspection

of District Co-operative Banks and co-operative
institutions affiliated to them.
 168

10. to serve as a balancing centre for co­

operative institutions in the state.
11. to undertake such other forms of business as
outlined in section 6 of the Banking Regu­
lation Act, 1949.
12. to do such other work as will be conducive or
incidental to the above objects and to gene­
rally promote the cause of co-operatives.
Membership and share capital :

4.5.1 The membership of the Bank is open only to

the District Co-operative Banks and State Government.
But in India some State Co—operative Banks like those
in Bombay, Madras, Bihar etc. admit individuals and other
organisations and societies as members. But, however
this trend is fast declining. Besides, nominal member­
ship or associate membership also is provided in some
cases. This is revealed by the following Table-24
given on page 169.

4.5.2 The number of member societies in the Kerala

State Co-operative Bank Ltd. as on 30.6.1984 was 13.
Besides, the State Government also has participation
in the share capital­
 169

8%
TABL§_ - ._2__51_
Table showing Membership in State Co-operative Bank

Year . ., V
' tive Bank Ltd. ' India
_' Kerala state Co-opera-' Consolidated figuresnfor
I ————————————————————— -_L-_---_--_------_ ---_-__-4

:Member :§::i:l'. :Member :§3g§:i' '

.Socie- .and .Nominal.Socie—,.and ‘Nominal
‘ties ‘others ' ‘ties ‘others ‘
- _ - _ 0 - _ - L _ - - e - _ - n _ - _ u - - - -1- - - - ­
1974 I 11 I 1 I NIL :13036 , 7212 ' 10791
- - _ _ u - - - L - - - L - - - L _ _ - u _ - - -:- - - - ­
1979 I 11 I 1 I NIL .1231? , 24010
_ _ - _ L _ - - u _ _ - L - _ - L - - - u - _ - -‘- - - - _
1984 I 13 : 1 : NIL I not a§a11ab1e '
unu-uh:-uHuun¢'unnuH-u-Hcu¢u:nuaxn=
Source : Statistical statement relating to co­
operative movement in India (Part I)
published by Agricultural Credit Depart­
ment of Reserve Bank of India 1974-'75
and 1978-'79.

4.5.3 The authorised share capital of the Bank as

on 30.6.1984 was m. 600 lakhs, made up of 600000 shares
of E. 100 each. The paid up capital on the above date
was m. 87,32,10o/- out of which m. 38,00,000/F repre­
f' . 1"
,__

sents Government‘s sharebi. Compared to 30.6.1980, the

85 Annual Reports of the gears

 170

paid up capital shows an increase of 62.18%.

Management :

4.6.1 Being a co-operative society, management of

the Bank is democratic in nature. Therefore, the
General Body is the supreme authority. The day—to—day
administration is vested in the Board of Directors.
For the executive management of the bank, there is an
Executive Committee.

4.6.2 The General Body of the Bank consists of re»

presentatives of District Co-operative Bank5,Ex—officio
Directors and Directors nominated byrthe Government.

4.6.3 The Board of Directors of the Bank consists

of representatives of District Co-operative Banks at
the rate of one from each bank, four nominees of the
State Government (three officials and one non-official),
the Registrar of Co-operative Societies (ex-officio)
and the Managing Director of the Bank. The President,
Vice—President, Registrar of Co-operative Societies,
the Managing Directors and four Directors elected from
among the members of the Board of primary societies
affiliated to it, constitute the Executive Comittee.
 171

4.6.4 The Chief Executive of the Bank is the

Managing Director. Next to him is the Secretary and
below him there are six Deputy Secretaries. For effi­
ciency and convenience, the work in the bank's Head
Office is assigned to six departments and each depart­
ment is headed by a Deputy Secretary. The departments
are :
1. Operations Department
2. Inspection Department
3. Planning and Development Department
4. Administration Department
5. Internal Audit Department and
6. Building Construction Department

Deposits and other resources :

4.7.1 Share capital, deposits, borrowings from
Reserve Bank of India, National Bank for Agriculture
and Rural Development (NABARD). State Bank of Travancore,
Industrial Development Bank etc. and reserves and sur­
pluses constitute the resources of the bank. The total
working capital of the bank as on 30.6.1984 stood at
B. 12,187.55 lakhs which was R. 5,219 lakhs‘dn.30.6.1979.
 172

This shows an increase of 133.52%. A comparative study

of the rate of growth of the working capital is shown
below :

hi“-m
TABLE - _g§_
Table showing working capital in State Co-operative Banks
'2—-g
wilt ij can
j j Z-1:3.
ZZ Olh
& .19 01 Zn
Z! Did —fi
count 9: at
j 0:mac
—lw3. Zj jXI j 1j 1j 1-
j j jj 1.
#3Q;j 1..
j 3 ~n 1a

._..._..-_1_----F-___-r__-_-­
in India . ' ,
Number
operative of State, 27
Banks Co-‘ 28
, ' ,. 28
I..._..___u_----L-__--L..._-­

capital ' , '

II
1 Amount in m. crores :
Total working - 3,356.00 ; 3,895.00 - 4,494.00
_Average
_ . . . _ _working
. -_;----_r--__-;
' _ . _ . __
Capital : 124.3 , 139.11 : 160.5
..._....-_r--_--r-----r_---_­
Rate of growth ' .. , 11.91 ' 15.38
........--r-----L---_-r___--­
Working capital of , ' ,
operative Bank , ' .
Kerala State Co— , .106.54 ‘ 119.65 , 121.88

Source : "Report on Trend and Progress of Banking

in India 1984-'85" published by Reserve
Bank of India, Bombay, page 147 and
Annual Reports of Kerala State Co—operat1ve
Bank.
 173

Here the term working capital refers to the total

of paid up capital, reserves and surpluses, deposits
and borrowings minus amount invested in fixed assets.

4.7.2 Deposits form the lion's share of the working

capital of the Bankw The Bank accepts all types of
deposits including Non—Resident Rupee Fixed Deposits.
It has been recognised by the Government of Kerala for
receiving deposits of Municipal Corporations and other
local bodies. It has provisions for the remittances of
funds and collections of bills. For the mobilisation of
deposits, it has opened eleven branches, of which eight
are in Trivandrum city and one each at-Ernakulam, Calicut
and Trichur.

4.7.3 The deposits of the Bank are divided into Fixed

Deposits, Savings Bank Deposits, Current Deposits and
Money at Call and Short Notice. Individuals, District
C0-operative Banks and primary societies form the depo­
sitors of the Bank. The total depositsof the Bank on
30.6.1984 was %. 74.68 crores as against m. 39.87 crores
on 30.6.1980. This shows an increase in deposits by
87.31%. The absolute figures of deposits are given
in Table-26 on page 174.
mochom u wbscmw wmwonwm om #30 wmsx

.@.l

mm

mwmm mam mwmcodcnm om Umvomwdm

H Ea Eéwa H IMMWWMMIWIII H mmmmw Hwmmmwywwaomcm 8%

.dwmm . . .mdwmm. . .dHmm . . .dHmm gwmm. dumm . . .monwmI. . .mo0Ma. . wooHmI. . mooHmI.<HI.nmH mooumt . .
. m .mHm . . m .wHm . my . m .wH .mH . m .a»I.aoI . m .mHm . .fimH _H:mHI. .Hmw .H:&MI. _HmH .H:mHI. .HmH . . .HmH .HsQMI.

a. H: Ononmm .

.4:
I I I.LaI I v m.I v m. . 3. . 3. . a. . a. . a. . a. . a. .5. .a. v a. . a. . a.

saw .w».mm .m.mo .¢m.mm _o.mq _».4I _N.wH .¢.Hq .o.wo _I.Iq _q.qm _zHw.q.qm.m~.om _m.¢u _mq.»m
wmmfi .mw.ww .I.oI .mm.wq _o.I~ _m.ow _m.pm .q.oq .o.- _q.~o _m.mq _zHr_m.mq.mm.uo _m.~o _q».mm wmmm .ww.qm _~.mw _wm.m4 _H.wp .H.Hw _m.¢¢ _p.om _o.wn Hm.~m _m.m~ _zHr.m.m~.Am.mw _¢.wm .¢o.oo Hmmg _ww.wo .m.Im .wm.qm .o.wI .H.oo .H.w¢ .m.om .o.Hm .¢.uH _q.Hm _zHv_q.Hm.¢I.q» _w.m» HIm.wm
I I I.I I I 1 I I 1 I I I I I I I I I I I I.I I I.I I I I I I I I I I I.I I 1 I I I I I I I I I . . I..l..l|.l.I.I.I...l.l.l...l.lnJl|.l..ll.Iu.II.I.II..-II .lIl...|l.|.l.....I. mmwn .wmsW .<wQcI.HodwH .wmsx .<w&5I.eo¢I mmswm .<HQcI.BonI wwsxm .H5I. wmdwm .<HmcI.8odwH
I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I IIIIILIIIIIIIII-.....r..I.....I......!I.I..lI..|....Il.I..II.............l.Il..1.Ia....|.l...o.|l..r...l~I.|.l.......I|I..!.|.l
IIII
..I..l.........ll_l.......fiI|.....l.III.|lI..I.l.l.I.l..I.ll..II.I..cl.....lI.I..l|_l.lI._...l|I..llI
i"_'IlIlfiInl..n.lc!...|.1II.llIIl-IIlll.ol.n'IllI""III-"'.In'IllI—'o.W.IOU‘----"' I.....!.II.......I.I.l.l.||l..|aIn...l.I.l.aI!.ua.l........_........II...........l....IIII..I..I_lII....Iu.lI.....ll
Home .mm.Iq .m.mm .mm.wo .o.mm .o.mm .H.wm .m.mm .o.»m .¢.H¢ .¢.qm .zHw,¢.qm.wm.mH .».om .wm.mq
IIIII+mmmmuI1IIIIII .... --Tmmmmuw--I--.-----TmmmmuI-----I-I---Tmmmmmwmm-I----Immmmn-I-----.----­ fl...".h.Hn.INH"UH""nun-"ah""n..I"..L...flH.""..H“U"""u.......fl..“.fl"U"....fln.dn.I....H"H"flnu.....Iu“
 175

4.7.4 An analysis of the nature of deposits reveals

that in all the five years. the share of Fixed Deposits
was more than 73% of the total deposits. The lowest
contribution was from Savings Deposits which was 3.91%
in 1980 and 3.28% in 1984.

4.7.5 From the depositor's point of view, the contri­

bution of non-members in total deposits was less than 10%
for the above period. For Central Banks and other so­
cieties, deposits in State Co-operative Bank is a sta­
tutory requirement. The relationship between different
types of deposits and between member depositors and non­
member depositors is as follows :
TABLE - 31
Relative figures of deposits in percentages
='.===é:==:-..===3=.-=-.:='=:::==£:.===:L==:a=
I
' . ,Money at . ‘Central
Year Fixed 'Savin-,Current .Cal1 & .Indi- ‘Banks &
I

-1980- 73.71
- r. 3.91
- -L -10.38~:11.99
"3 :1o.1e
- - ,~. E9:8E
' Deposit ‘gs De-.Account .Short
I
.viduaIs'Societies
I

1951- r - 33:92 -.-2:7; : -8:56 -:I4:7§ - -:-7:4; :I_ 32:53

19;; :' ' 33:3; ‘.15; ; 30:5; 3 21:2; ‘ 3 ‘sag _: 31:23
1953' Y - 34:71 -I-4:0; E '7:7§ ‘:i3:4§ - -:-9:45 _.: 3015?
1954. r - ;5:4§ -I-3:2§ - -9:73 "-I1T4E8.42
' -'- '. 91.58
nuupnunu-'nnuHnnun‘-u-uu'unuu
Source : Annual Reports of the Bank.
 176

4.7.6 It is a matter of controversy whether an

Apex Bank should open branches for collection of de­
posits. In the light of the opinions expressed by the
respondents of Primary Banks and Central Banks, it is
felt, that, the State Co-operative Bank should not open
branches at places where a branch of a Central Bank or
Primary Bank exists. But it can open branches at other
places. Besides, it can open more regional offices for
more effective administration and supervision of affili­
ated units. When branches of Apex Bank, Central Bank
_and Primary Bank exist in the same area, that may cause
lack of co-operation among the co-operatives due to
competition.

4.7.7 Reserves and surpluses form another sorce of

own funds for the Bank. The total resources of the Bank
as on 30.6.1980 were B. 352.72 lakhs while the same on
30.6.1984 stood at s. 959.33 lakhs. This shows an in­
crease of 171.98% in four years.

4.7.8 For meeting the credit requirements of its

members, the bank borrows frm Reserve Bank of India,
National Bank for Agriculture and Rural Development,
State Bank of Travancore, Industrial Development Bank of
India etc. The total borrowings on 30.6.1980 were
 177

B. 1,698.87 lakhs and on 30.6.1984, %. 3,448.61 lakhs.

This shows an increase of 102.99% in four years.

4.7.9 The maximum borrowing limit of the bank is

restricted to 15 times the own funds of the bank. The
term own funds here includes paid up share capital,
statutory reserve fund and other reserves of a permanent
nature, such as the Agricultural Credit Stabilisation
Fund, Dividend Equalisation Fund, Building Fund etc.

4.7.10 The absolute figures regarding paid up capital,

reserves, deposits, borrowings and working capital for
four years ending 30.6.1984 together with their rate of
growth are given in Table—28 on page 178.

Principal State Partnership Fund :

4.8.1 Principal State Partnership Fund refers to the
amount received by the bank from the State Government
under the State Partnership Scheme. The amounts received
by the bank under this scheme are to be transferred to.
a fund called "Principal State Partnership Fund". The
use of this fund is restricted :
a) to the purchase of shares directly in District
Co-operative Banks and other co-operative
societies with limited liability.
 178

mH.«m om.~m om.mm

mm.HhH mm.~ofi uv.~mH

Iona mo mumm. 0>am CH 2M3. X mummh.

mm

flAm4B Ia mzxma ca a0>«o mum munfioaé

... ...

mm.mmm b Hm.omm . uw.ofim _ Hm.omm b mu.mmm

~m.nm¢ . mm.¢ov _ oo.m~v _ mm.mmm _ mv.oom mo.mvvH . MHIHQOH H n¢.ovm . oa.omn . Hm.mmo

Hm.mvwm L «o.¢mHm . nm.mmnv _ m~.nomm L nm.mmwH

vmmH.o.om_mmmH.o.om. ~mmH.m.om_ flmmH.o.om_ ommH.m.om om.mo¢n L ¢m.mvnm . mm.ooom _ mv.mmmv L Hv.ommm
I.I I I L I I I I J I I I I I.I I I I I L I I I I I ll'IUII I_I._InIIul.#Il.llIllIuaI."I_vIU Ills"­ I I I I L I I I I J I I I I I.I I I I I L I I I I I
.-IaIIn.._l uI..IIl.I.JIlIl.vIlI.-I-lI'Iull Ivl.-lull.‘ "Ital IuIlIu.'Iu'..I'I.II'IIl-lull slvlllunllv mm.nmHmfi. mm.¢ooHH_ m».mmmoH. ¢m.mmm> . oo.momo l..IllLI.IIlJI.Il.........IllllLlllll ou mcwumamu muamemumum Hmoaumaumumz cam xumm ecu mo muuomom

. . . . . LIIIIIIIIIILIIIIIIIIIuIIIIIIIIIILIIIIIIIIIILIIIIIIIIIII

mwcfiw no mmourom msoHnw> Mo mnamumfi mc«3o£m mange

mbuomom an conmaansm =AH yummy waoca ca PGOE0>O2 m>uumummoIo0 on»

Lucoeuuwmwn uwcmuo Hmunfiaaoaumfl .m._u.ucH mo xcmm

. mm + a.
awsnq< u OOHSOW

. AQS Oammv
mumauoauumm . Hmvwmwo

LIIIIIIIIII
. amuwmmu wuwnw Ia
L:uI‘Iul'l . mmbummmm In
LIIIIIIIIII
. muamoama .m LIIIIIIIIII . mmcazouuom .¢ LIIIIIIIIII . acaxuoz .m L mwcsw Uwczo .w ."""'.'I
 179

b) to provide money to a District Co—operative

Bank to enable it to establish a "Subsidiary
State Partnership Fund" for purchasing shares
in other co-operative societies with limited
liability.
4.8.2 However, shares can be purchased by the Bank
in a co-operative society out of this fund, only after
obtaining previous approval in writing from the state
Government. Again the amounts received by the Bank, on
shares purchased, by way of dividend or redemption of
shares have to be credited to the Fund and are to be paid
to the Government. The balance of the Fund shall not form
part of the assets of the Bank.
4.8.3 The position of the Fund as on 30th June for
five years was given in Table—29 on page 180.

The entire Fund was utilised in all the years under

study for investments in the shares of Central Banks,
Primary Agricultural Credit Societies and Primary Banks.

Employment of Funds :

4.9.1 Share capital reserves and surpluses, deposits

and borrowings are the major sources of funds for a bank.
The way in which the funds of the Bank are utilised by
 180

.I .';' II.CI.
Table showing the position of the Principal State Partnership
====.-zé=========:.4===:=.1-=====.5==5.;F.M
. Amounts in B. lakhs
Typs 0; r ----------------- ——« ----------------- '-r ------ —=-­
Societies 30.6.1980 '30.6.198130.6.1982 '30.6.1983.30.6.1984

Co-op- I 415.35 ' 420.35 I 475.35 542.80 I 590.65

I I I I ‘I I I I I I’ I I I I "I

470.17 508.68 544.03 562.78 569.24

I I I I I ‘I I I I I I I I I ‘I I I I I

""I"°""""'I'

I I I I 1 -..­
I I I I I I I I 1
1128.33 ' 1183.34
2H-—--2”H:“h‘2:jj-2—-Tau-”—_” r "'r "'-n­

Source : Annual Reports of the Bank.

it, is referred to as employment of funds. The total

funds of the bank as on 30.6.1984 stood at B. 123.62
crores as against.m. 63.38 crores on 30.6.1980. This
shows an increase of 95.05% over a period of 5 years.
 181

4.9.2 A.portion of the funds of a bank is always

blocked in fixed assets in the form of land and buil­
dings, furniture and fixtures, vehicles etc. As on
30.6.1984, 1.42% of the total funds i.e. $. 1.75 crores,
was invested in premises, furniture and fixtures and
vehicles. Thus, the working capital, i.e., the differ­
ence between own funds, deposits and borrowings and in­
vestment in fixed assets, on the above date was 3. 121.87
crores.

4.9.3 The total amount outstanding by way of loans,

cash credit and over—drafts as on the date was 3. 84.84
crores which was 69.62% of the working capital or 68.63%
of the total funds. However the rates for the five years
period ending 30.6.1984 were different. They were :

g Q
3
.'12.-“.*§I:§. - Q9.
Bable showing ratio of Loans outstanding to working capital and
..=:=::='.-:-.:===:::..-:===:=;p-:.-====-===atotalf‘L[§
. As a percentage on .As a percentage on
. working capital , Total funds
I I I I 3- i r 1 1 1 1 1 I I 1 I I r X 1 I I I I 1 1 I
1983 . 72.72 . 72.51
as — 3 an — an r Q m G — — — — w 0- -I II — CI -' -I 0" HI -I G
1 Z 1 $ 1 I-0 r t I I I 0- -' -D -D -' 3 r 9' 1 T F 1 1 1 I '1

1980 . 71.60 . 71.21

— u m — an — to an -o — — no on an — -- - r — - CD -I D -I‘ - — 5
 182

4.9.4 “The credit operations of the Bank are under­

taken throughout the state through a net-work of 13
District Co-operative Banks with their 272 branches and
about 1535 Primary Agricultural Credit Societies based
at the village level as also a net-work of non-agricul­
tural credit societies and Urban Co-operative Banks"86.
The financing by the Bank covered short~term, medium­
term and long-term credit for agriculture and allied
activities, credit needs of Urban Credit Societies,
Employees’ Societies and Village Credit Societies, wor­
king capital requirements of traditional industries like
handloom, coir and other small and cottage industries,
District Wholesale Consumer Stores, Marketing Societies
etc.
4.9.5 “The resources mobilised by the Bank have to
be so deployed that they not only maximise its profits
but also help the economic development of the area"87.
Keeping this in view, the Bank has also undertaken
several developmental projects like :

86 A Brief note on the working of ‘The Kerala State

Co-operative Bank Ltd., Trivandrum, published by
the Bank edn. 85 Page 4.
87 "Developmental Role of State and Central Co­
operative Banks” published by the Reserve Bank of
India (Agricultural Credit Department) Bombay, 1973
Page 8.
 183

1. Financing of fisheries development programmes

with refinance from National Bank for Agricul­
ture and Rural Development (NABARD).

2. Financing of rubber processing units with

assistance from National Board of Agriculture
and Rural Development and from National Co­
operative Development Corporation under the
Central Sector Scheme.

Financing of industrial activities with assis­

tance from Industrial Development Bank of India.

Financing, as agent of the Kerala State Housing

Board, under the scheme for providing loans to
the weaker section of the community for constru­
ction of houses with assistance from the Housing
and Urban Development Corporation and the
State Government.

4.9;6 The details of sources of borrowings, purpose

of borrowings, and balance outstanding as on 30th June
of each year for the last five years were as follows
excluding the general cash credit from State Bank of
India and State Bank of Travancore.
 CD

8Ww

vm

I B.

.... m3.

emu? mwofium moumfim ow coaaocuzmm

moanom « mbncmw wmvondm om «So mmbw mom m»<o %mwHm msmwsc wo.a.~om».

. z.o.u.o. . wuumsnm no wccumn w _ _ . . . mnmdm Qolm Unocawn nmpumm no T _ T . . T : _ v%:oIn%H8 mHdw%om no _ _ . _ _ fl : . onrmn moowmdwmm . . . I _ _ T : . 2mm<mHm moowmwnmm . . . m _ . = . 3mQH¢3IdmHB Wouwocwl . . . . . . m ncnmw Hmncunmamanm @I _ . . .

. . uvaoasn oanmnmaawso mm 05 won: qdmm A3. H3 Hmxrmv

. ¢@HDBm5¢ . mmfiamum . zHr . zmr . zmv .».ooo.oo . ZHV

. H.U.m.H. . Hbacmdhwmw mwdmboo . »om.~H _ »p~.»» . om.mm. oo.~o . ~oo.ou

. . Unoommmwso cbuam . HA.m» . »w.»m . »p.mo. o.m¢ . q.mo
-I.l....I...........l..II.I.lI.._._.l..l.._..I .llI..l|o.lI|uI.I.I..l..._...l.l.....l.I.II...!....I.III
Fl " 9.! I '1': II II - IIII ' II II I... It "II'.II II II - I-nil In Io 5' cl:
_ . ammnmwnmmommmm ova . nod m<wHHmUHo . oo.¢m_ -o.qo _ ~oo.~m |..I..II|...l.....IllIlIIl.lV.ll.I.I|.....I.....ll_l.Il....ll.Il.Illllll
. . Am:onnI¢onaV . 50¢ mqmupmuwm . umm.mn. wwm.qm . Hmm.mm
I I I I I.I I I I I I I I I I I r I I I I I.I I I I I r I I I I I I I I I I I I I I . . Amvofinldmnav . ~mo.mm . mmH.mm . mwq.Hq. m»q.mo . qamemo I I I I I.I I I I I I I I I I I r I I I I I.I I I I I r I I I I I I I I I I I I I I . . flbhmw Hmncwhmambdm . mum.mo . uomoqm . wm~.mm. mmm.oa . ~I»o~.oo 1‘l""sII':""fl . zvwwmu . msondlnmna QOHHOQHI . q»o.oo . u.uqm.oo .w.»mm.oo_~.¢~m.oo _ mpm.mN
_ . . »oqoI.mo . HmmoI.mp .»wm»I.mm.Hom~I.mw . »omuI.m»
monoo . wcfivomw .IIIIIIIIIIIIIIIIIIIIIIIIIIIIII1IIIIIIIII1IIIIIIIII
Wuflnnflflflflflflflflfluflflflflflfl.n..Inufl.."H..fl...fl"n...Ih."fluHnuHnufluufluuflfl

WflflufluI...fl..u..u...uu...u.I.ncaflflflflrhflnuflflfl.....unIIflHH—..unuu.uflU.uuflnII....un..»...r..flHflfl
 185

4.9.7 An analysis of the lendings of the bank makes

it clear that provision of agricultural credit is the
main business of the Co-operative Banking System in the
State. Of the total loans and advances outstanding,
e. 8,483.85 lakhs on 30.6.1984, 5. 4,146.63 lakhs was for
the agricultural sector, coming to 48.88%. On 30.6.1983
it was 51.76% and on 30.6.1982 51.22%.

4.9.8 The main classification of the advances, be­

sides for agricultural purposes, are weavers‘ finance,
coir finance, industrial finance (other than weavers and
coir), short-term and medium-term non-agricultural loans,
consumer finance, marketing finance, long-term loans and
others. The long-term loans include loans provided under
Kerala Agricultural Development Programme, NABARD Schemes,
N.C.D.C. Schemes, I.D.B.I. Schemes etc. The share of
each in the total loans and advances for 5 years ending
30.6.1984 uis given in Table—32 on page 186.

4.9.9 The financial accommodation provided by the

bank, as shown above, includes the finance extended to
apex institutions in the state like Kerala Co-operative
Central Land Mortgage Bank, Kerala State Handloom Weaver's
Co—operative Society, Kerala State Co—operative Marketing
Federation, Kerala Co—operative Consumer's Federation,
 186

TABLE - 3;

IZt1Z1
fable sho ing
=;==oI:J". gitio of diffe
§t%n=I';.g:..-to: engigéfes...e1';...
téo't~;...:a]:'.- of lawn
, As a percentage to total lending

- - -1-I-39.94
- - L -I -51.22
B. ==...__..._=.-.==:
==.-d in lakhs
Loan c1assi- p—--—----p-------- ------——-r----—-----r—-------­
fication 30.6.198OB0.6.1981.30.6.1982,30.6.1983 .30.6.1984

.1'. figfifgifig‘
_ _ . . - - L I-48.89 - - L .- 51.76 I 48.88
- - _ -'_ _--­
finance ‘ ° ' ' ' ' ' ' ' ’
111X1}
2' weavers’ ' 9 51 ' 7 41. 9 04 11 95 ' 12 70
3° gfignce I 5.66 I 8.41 I 6.23 I 7.34 I 6.25
-4'_gffigfigglal
. . . _ - - L - -I -0.27
--- - I_0.20
- L - I- 0.11
- - L -I -0.14 I 0.33
- - -1- ---­
5. Non-Agricul- ' ' ‘ ’ ‘
term loans ' ' ' ' '
tural sh0rt— ' 8.42 ' 16.28 ' 14.08 ' 12.39 ' 8.48

X
6. 1 X
Consumer X
' 8' ' ' I
' I
¢ — ¢ n ¢ : uuauL-9-90-00..-upnun‘-co.-non-out-¢oQ¢n:'nuQ$@$
finance . 4.96 . 3.47 . 2.52 . 2.46 . 2.78
7. Marketing ' ‘ ‘ ' '
finance . 5.70 , 7.88 . 3.95 . 1.04 . 3.50
. _ ¢ — ¢ g _¢L_.—..¢’-n—¢aL—¢——L:¢—x—.QQ$¢x
8' §g2g;t°rm I 5.43 I 4.32 I 3.09 I 5.46 I 9.72
Q — m — ¢ w —-n!--Q-to-In-1-«I-—L---III-OP‘--9'|'¢¢'0"'.—"""
9.
. . .Others
. _ _ - _'L11.19 ' 12.09
_ - _ .I. . - - L -' -9.76
- - L '-7.46
- - - .I.' 7.35
.--_
‘100.00 ’ 100.00 ' 100.00 ' 100.00 ' 100.00
=====.===E=-..===‘=:===E==..-.:=%===:.-.='::r====

Source : Absolute figures from Annual Reports of

the Bank.
 187

Kerala State Co—operative Rubber Marketing Federation,

Kerala Apex Co-operative Housing Society etc. The
bank also provides financial assistance for meeting the
working capital requirements to the Central Arecanut
Marketing and Processing Co-operative Ltd.. Mangalore
(Karnataka State) for procuring arecanuts from Karnataka
and Kerala under consortium arrangements with four
Commercial Banks and the Karnataka State Co-operative
Bank.

Profit and Profitability :

4.10.1 The concept of banking has undergone a se­
ries of revolutionary changes. At the same time the tra­
ditional principles of safety, liquidity and profitability
have not been ignored. This necessitates realistic
planning in the mobilisation and deployment of funds, and
maintaining an optimum relation between incomes and exp
penses. Profit is not the sole aim of the bank. Yet,
it is necessary to take up more and more social and
econoic responsibilities. The terms ‘profit’ and
'profitability' in this chapter have the same meaning
as given in 2.13.3.
 188

4.10.2 other things being equal, a steady growth

in the net profit shows a desirable trend in perfor­
mance. when compared to 1980, the net profit incre­
ased by 198.42% in 1981 and 19.16% in 1982 when com­
pared to 1981. But since then the rate of change is
negative. On the basis of 1982, the profit was 3.7%
less in 1983 and 37.1% less in 1984 when compared to
1983. This is not a desirable indication.
4.10.3 In the total expenditure of the bank, inte­
rest paid on deposits and borrowings constitute more
than 75%. It was 81.58% in 1979-'80 and 79.21% in
1983-'84. But the rate of growth in payment of inter­
est shows a decrease. The _interest paid on deposits
and borrowings in 1980-'81 was 36.7%-more in relation
to 1979-'80 while it was only 9.55% in 1983-'84 when
compared to 1982-'83.

4.10.4 Next to interest paid, administration expenses

or office overheads constitute a major item of expen­
diture. It was 6.96% in 1983-'84, 5.17% in 1982-'83,
4.39% in 1981-'82. 5.23% in 1980-'81 and 6.24% in
1979-'80. At the sam time the rate of growth in office
overheads is steadily increasing. Using the chain base
relative, it was 17.71% in 1980-'81. 26.88% in 1982—'83
and 46.09% in 1983-'84.
 189

4.10.5 More than 85% of total income of the bank

comes from interest and discount received. But, this
ratio is showing a gradual decline as it was 95.94%
in 1979-80, 93.56% in 1980-'81, 90.67% in 1981—'82,
89.47% in 1982-'83 and 88.24% in 1983-'84. At the Same
time, the rate of growth in this source of incoe is
declining. For example, interest received in 1980-'81
when compared to 1979~'80 was 41.34% more. But it
is 26.85% in 1981-'82 compared to 1980—'81, 5.82%
in 1982-'83 compared to 1981—'82 and only 4.79% in
l983—'84 compared to 1982-'83.

4.10.6 Thus is is found that, the employment of funds

is not in tune with the sources of funds. Investment
in buildings, furniture, fixtures etc. does.not earn
any direct return. Of course, it adds to the efficiency
of a bank, but only to a limited extent. It is diffiu
cult, as observed by the Reserve Bank of India, to lay
down a definite optimum proportion for such investment
to the total investment. "However, the position over
the past five years or so should be compared to see
whether the proportion is reasonable"89. Till 30.6.1983

89 Developmental Role of State and Central Co-operative

Banks by Reserve Bank of India (Agricultural Credit
Department) 1973 page 14.
 190

the ratio of investmnts in fixed assets to total

funds was less than 0.5% but it reached 1.42% as at
30.6.1984. It is noted that the net profit as per
Profit and Loss Account decreased by 37.1% in 1983-'84
compared to 1982-'83 while decrease in the operating
profit was 33.72%. Besides, working capital increased
by 12.31% as on 30.6.1983 compared to 30.6.1982. But
when compared to 30.6.1983, the increase in working
capital as on 30.6.1984 was only 1.86%. Obviously,
this indicates the disproportionate increase in the
investment in fixed assets.

4.10.7 To satisfy the principles of safety and liq­

uidity, a portion of the funds available to the bank,
are kept in the form of cash, bank balances and invest­
ments. As on 30.6.1984, 30.71% of working capital or
30.27% Qf total funds was kept as investments and cash
and bank balances. "Income bearing investments are
Government and trustee securities and short-term or
Fixed Deposits which have to be necessarily maintained
to satisfy the legal requirement of liquidity"90. Of
the above 25.18% was in the iorm of Current and Savings
Deposits with other banks and District Treasury, 47.22%

90 Ibid
 191

in the form of Government and Trustee Securities,

22.21% in the form of cash in hand and with Reserve
Bank of India, State Bank of India and Notified Banks
and balance money at Call and Short Notice and shares
in co-operative institutions.
4.10.8 A major source of income for any bank is
investment in loans. From the profitability point of
view, loans for trading activities or for non-agricul­
tural purposes generally earn more interest than the loans
for short-term or medium-term agricultural purposesgl.
But, financing agriculture is the basic responsibility
of the State and Central Co-operative Banks92 and, as
such, short-term and medium-term loans cannot be negle­
cted. Of the total loans outstanding on 30.6.1984,
only 8.48% was due from non-agricultural, short-term
and medium-term loans. Total long—term loans accounted
for only 9.72%.

4.10.9 Cost consciousness is more important than

income consciousness because it can regulate the costs
to a greater extent than income. Interest paid on de­
posits and loans is a major item of cost. Fixed Deposits
are costly when compared to Current Accounts and Savings
Bank Accounts. But 73.715 of the total deposits as
91 Ibid
92 Ibid
 192

on 30.6.1984 is by way of Fixed Deposits. By pro­

viding various banking facilities and services which
depositors require, the bank can increase Current and
Savings Deposits. It is felt that conscious effort
should be made by the management in this regard.

4.10.10 Salaries and allowances to staff and other

administration expenses form the next important item
of expenditure. To avail and maintain competent staff,
the scales of pay and other emoluments of the staff
have to be sufficiently attractive. At the same time,
merit rating and periodical evaluation of the staff by
the management will improve the morale of the staff. But
this is not found in practice in any Co—operative Bank
including the State Co-operative Bank.

Development and other Activities :

4.11.1 The bank takes interest in the development

of Central Banks and other co-operative institutions
in the state. It conducts periodical conferences of
District Co-operative Banks, holds seminars etc., for
the development and growth of co-operative institutions
in the state. During the last four years ending 30.6.1984
 193

the bank convened two conferences each of Presidents

and Chief Executives of Central Co-operative Banks
to discuss policy matters and problems relating to
the working of the Central Co-operative Banks. At
such conferences matters such as efforts made by the
Banks in mobilising deposits, recommendations concer­
ning the co-operative movement made by various commi­
ttees, changes in policies and procedures suggested by
Reserve Bank of India/National Board of Agriculture
and Rural Development/Government were discussed. In
1981, the bank also conducted a seminar of primary agri­
cultural credit societies on "Co-operative Credit”.
4.11.2 In 1983, the bank constituted a Technical
Cell comprising of experts in agriculture, industrial
finance and fisheries. This was meant to diversify the
lendings for agriculture and allied activities, indu­
strial financing, fishery development etc. and also to
render help to the Central Co-operative Banks in the
formulation and implementation of suitable schemes for
development in these sectors.
4.11.3 The bank has also constituted a separate
‘Urban Bank Cell‘ in charge of a Special Officer for
 194'

taking effective steps for the development of Primary

(Urban) Co-operative Banks. Besides, the Bank had
appointed a Standing Committee on Urban Co-operative
Banks in October 1982 to deal with matters connected
with different aspects of working of such banks. The
Committee consists of representatives of District Co­
operative Banks, Primary (Urban) Co-operative Banks and
the Registrar of Co-operative Societies. Of the 10
members in the Committee, five are from the Kerala State
Co-operative Bank, including the Special Officer, Urban
Bank Cell, one each from the Board of Directors of
Trichur District Co-operative Bank, Malappuram.District
Co-operative Bank, Cranganore Town Co-operative Bank and
Palghat Co-operative Urban Bank. All from the Kerala
State Co-operative Bank except the Special Officer are
members of the Board of Management.

4.11.4 In 1983-'84 the bank organised ‘Special

Banking Channel Training Programmes‘ at Co-operative
Training College, Trivandrum for the benefit of the
staff of the State and Central Co—operative Banks. The
cost of the programme was met by the State Co-operative
Bank to the extent of B. 25,000/- and E. 500/% each by
the Central Co-operative Banks.
 195

4.11.5 Besides, the bank had also organised se­

parate training programmes on industrial financing for
officers of Urban Co-operative Banks and District Co­
operative Banks. Two training sessions each of a week's
duration were held in the first week of August 1983
and the last week of September 1983 for the Chief Exe­
cutives of Urban Banks at Co—operative College,
Poojappura. It also conducted in October 1983 a 5 day
orientation course on industrial financing for the
General Managers and Deputy General Managers.

4.11.6 The Bank has been laying emphasis on deposit

mobilisation not only at its level, but also at the
levels of Central Banks and Urban Co-operative Banks
and Primary Agricultural Credit Societies. The bank
had initiated intensive deposit mobilisation cmpaigns
from 1976. During the year 1983-84, as against the
target of m. 4,000 lakhs, the total deposits mobilised
by co-operatives came to m. 9,366.62 lakhs, forming
234.16% of the target.
 196

The figures are given below :

2‘.£’:§.1:.E_"§.§
Table showing progress in deposit mobilisation
Rs.in1akhs
='.==========-‘=='======'::======

II
TYPE of Institution ' ggfiggt ' Achievement
-""‘-""""" ” * " - ""—-—' - — - C ——' H — — — u -an
State Co-operative Bank ' 140.00 ' 160.45

II II
" ' ' ' ’ - - " ' ' " ""'I"""""""a"""'-,""""
District
Banks .Co-operative ''
2,575.00 . 6,526.16
Urban Co-operative Banks ' 540.00 ' 986.90
1V131111131
I
Primary
Total
Credit IAgricultural
I I' .
Societies ' 745'00 ‘' 1'693’11
'

=====-..:======:..-'=.-===::='=======
Source : Annual Report 1984.

4.11.? The bank publishes several valuable data

like Annual Reports meant for share holders, notes on
working of the Bank meant for students of co-operation
etc. But some Annual Reports are not free from mistakes.
The mistakes include clerical errors, errors of principle
etc. For example the Annual Reports for the year
 197

1980-'81 and 1982-'83 contain errors of principle in

the Profit and Loss Account. Provisions and reserves
created during the years were treated as expenses and
debited in Profit and Loss Account under the head
“other expenses". Hence the operating results are
readily not available from the Profit and Loss Account.
Care should be taken to see that such errors are avoi­
ded. Similarly, items like bad debts, reserve for
doubtful debts etc. should not be disclosed in the
Profit and Loss Account and Balance Sheet as it can
adversely affect the public confidence in the bank.
To satisfy the commercial principles, it can follow
the form of Profit and Loss Account and Balance Sheet
adopted by commercial banks as per the directions of
the Reserve Bank of India.

Conclusions and Recomendations :

4.12.1 For the smooth and efficient working of the

bank, there are six departments in the bank, each headed
by a Deputy Secretary. The State Co-operative Bank is
the Apex Bank for the co—operative credit structure of
the state. At the primary level, there are different
types of societies, like agricultural credit societies,
non-agricultural credit societies, employees‘ co­
operatives etc. The objects and functions of these
 198

societies vary widely. some societies are characte­

rised by dual control and facing severe competition
from commercial banks. But the number of such socie­
ties per district is not large and therefore the Dis­
trict Co-operative Banks cannot open a separate de­
_partment for them. Again, many such banks are not
availing financial assistance from the district level
Apex Banks and as such the accountability of such
societies to District Banks is of theoretical impor­
tance only. It is a fact that 9 out of 55 such banks
are classified as weak banks and require rehabilitation
as on 30.6.198593. Two more banks are placed under
observation of the Reserve Bank of India. This calls
for an effective supervisory machinery at the state
level.

4.12.2 Therefore, it is suggested, that a separate

department should be opened in the Kerala State Co­
operative Bank and the Urban Banks coming under dual
control should be given a common cadre. Matters relating
to personnel, including appointment, should be within
the powers of the department. The department must con­
sist of competent staff having sufficient know-how in
co-operation and banking. There should be an advisory
committee to guide the H?ng of the department

93 Reserve Bank of indie circular dated l4.3.'8b

NO; Kg -'
 199

consisting of two nominees of the Reserve Bank of India,

one nominee of the state Co-operative Bank, Registrar
or Deputy Registrar of Co-operative Societies and 3
elected members from the Chief Executives of the Primary
Banks. The department has to undertake periodic inspe­
ction of books of accounts of the Primary Banks and
should suggest remedial measures for the problems and
grievances of the banks.

4.12.3 Being an Apex Bank, the State Co~operative

Bank need not open more and more branches for deposit
mobilisation. As on 30.6.1984, deposits from non-members
was only less than 10% of the total deposits. To attract
more non-member depositors, it has to offer more banking
facilities, which in turn may bring competition among
co~operatives. But it can open more Regional Offices
so that control and supervision will become more effective.

4.12.4 In the light of view expressed by the respon­

dents from Primary Banks and District Banks, it is felt
that, the principle of open membership is not satisfied
by many banks. This is partly due to the ignorance of
the public and partly due to the ineffective supervisory
machinery. The Apex Bank should see that such unhealthy
practices are not allowed to continue and measures should
 200

be taken to educate the public by publishing litera­

ture, conducting seminars etc.

4.12.5 The present trend in the profits of the bank

gives an undesirable indication. The bank should see
that there is a reasonable equilibrium between the
structure of deposits and structure of loans. The de­
posit advances ratiostanding
i.e. x100
Total deposits outstanding.
Total loans and advances out­
as on 30.6.1984 has worked out to 113.62%. But there
was no steady correlation between the average interest
paid and average interest received. This can be under~
stood from the following table :

2 can
1.. j 1 i1 -—
Qt. our
ICC(in j 1'i 1j 1.—Q
:9 or n.-QCan
our-1:1Q:
canto1&-—
j Tj1j j111C-0
GO13Q9
1 1j X
1 at
-Ini
' Total interest ' Total Interest
Year ' received ;.loans
' outstanding ' paid
x 100' - Deposits
outst ding X 100
'___...--L---.._.-­
1984 ‘ 11.14 ' 11.03
_ . . . . - -I- _ - - - - - _ - - L - _ - _ - _ - - ­
_ _ 1983
_ . _ _ _-- '_ 10.37
_ _ - - _ _ _'_13.09
L_-_--_--­
1982 ' 10.08 ' 13.60
_ . . . _ _ _t. . _ - - _ - - - _ L - - - - - - - - _
_ _ 1981
_ _ . _ _t-‘_ 11.18
_ - - - _ - - '_ 11.09
L------_-­
= 1980
= :.-. r.‘ = 10.54= -' L' 9.84
__,..___,—.,-.1; ”*x—“x­
Source : Absolute figures from Annual Reports.
 201

4.12.6 Therefore it is necessary that the bank

should increase the non-agricultural loans through
additional exploration of resources. Similarly, the
ratio between Fixed Deposits and other types of depo­
sits should be made more favourable by increasing
Savings and Current Deposits.

4.12.? To reduce the burden of administration and

establishment expenses, it should adopt merit rating
and efficiency evaluation of the staff. Good perfor­
mance should be suitably rewarded. Besides, the manage­
ment has to examine, from time to time, the adequacy
or otherwise of the staff engaged from the quantitative
and qualitative aspects.
 202

c H A P T E 3 - __}_I_
CONCLU§IONS g\1I_)___B__ECOMI-«LEPIDATIONS

5.1.1 The conoperative banks form an important

segment of the banking System since they are intended to
mbilise the savings of large numbers of people in the
urban, middle and lower income groups. These banks are
expected to do to the small trader, the small merchant
and the middle and lower income group members what the
commercial banks do to the big traders and the big
industrialists. They are also expected to finance small
scale industries and also to provide banking services to
its customers. The large joint stock commercial banks
are not very much interested in developing the business
of small loans on account of the high incidence of cost
of services and overhead. It is this gap that the
co—operative banks have to fill. This is because the
co-operative banks are not as profit oriented as commercial
banks.

5.1.2 The study has proved that all Primary

co-operative Banks are not prepared to adopt the principle
of purpose oriented lending. Gold loans and mortgage
loans constitute more than 50% of the lendings of these
banks. Further, no bank has any scheme to make sure that
 203

the loans sanctioned by it are used for the purposes for

which they were sanctioned.

5.1.3 All Primary Co-operative Banks other than the

3 Employee's Co-operative banks use the term ‘Urban’ or
'Town' in their names. But all of them are not situated
in urban areas. Yet worse is the fact that many urban
centres do not have an Urban-Co-operative Bank and are
not covered by any of the nearby banks. Further, wide
variations are seen in the area of operations and in
secondary services offered.

5.1.4 In 5 District Co-operative Banks, the concept

of security oriented lending prevails. The net profit
ratios of all these banks are not only very low, but for
50% of the banks, the ratio is showing a decreasing trend.
The Annual Reports of these banks make it clear that they
are not catering to the needs of non—agricultural
societies. Besides, the opening of a number of branches
to conduct banking business and lending to non members
will defenitely result in competition among co-operative
societies, which is against the basic principles of
co-operation.

5.1.5 Therefore it is seen that on account of the

uneven distribution of co-operative banks, absence of
 204

uniformity in services and charges, lack of managerial

skill and lack of co-operation among co—operatives and
also lack of purpose orientation in lending. co-operative
banks have not been able to make much impact on the
banking system in the state.

5.1.6 To overcome this, a series of measures by the

Government, State Co-operative Bank and District
Co-operative Banks are necessary. It should include:

(a) steps to avoid the uneven distribution of banks

either by opening new banks or by extending the area
of operations of existing banks.

(b) The State Co-operative Bank and the District Co­

operative Banks should reset the rates of interest
on lendings to their affiliated banks based on the
purpose of such lendings to enable the affiliated
banks to satisfy the principle of purpose
orientation in lending.

(c) Measures should be taken by the Government and

Reserve Bank of India to maintain uniformity in
services and charges.

5.2.1 District Co-operative Banks are responsible for

‘the control and co-ordination of activities of the Primary
Banks in the districts concerned. But it is seen that,
 205

as on 30.6.1985, the District Co-operative Banks have

done nothing for those Primary Banks who are not borrowing
from the District Banks. On the other hand, all
respondents from the District Co-operative banks were
unanimous that they were basically agricultural societies
and a lion's share of the funds and skills are directed
in this direction. No District Bank, as on the above
date, had a separate cell for the Urban Banks. besides,
none of them had specialists in banking. Even the
conferences, seminars etc. were conducted for different
types of societies together.
5.2.2 The absence of a seperate department in the State
Co-operative Bank meant for the Primary Banks coming under
the Banking Regulation Act, prevents it from doing anything
for the Primary Banks. 9 out of 55 Primary Banks were
classified as ‘weak banks‘ and required rehabilitation as
on 30.6.1985. Two more banks were placed.under observation
of the Reserve Bank of India. The present trends in the
profits of District Co-operative Banks and the state Co­
operative Bank are found unsatisfactory. In many cases
there was no steady correlation between average interest
paid and average interest received. A low level of
operational efficiency was found in all these banks.
Qualitative and quantitative inadequacy of staff and
management was found to be the major reasons for this.
 206

5.2.3 The Reserve Bank of India regularly inspects

the Books of Accounts of these banks and gives directions.
But many of the directions remain unsatisfied by a number
of banks especially at the primary level. Thus it can be
seen that there is an urgent need for more effective
attention by the Government and the Reserve Bank of India
to utilise the vast potential of this industry. The
following recommendations are made in this regard:

(a) A separate Department should be formed under the State

Co-operative Bank, for guiding and controlling the
Primary Co-operative Ranks coming under the regulations
of the Banking Regulation Act.

(b) In order to achieve operational efficiency through

cost reduction, schemes for merit rating and job
evaluation for staff are to be implemented.

(c) The Reserve Bank of India should take serious measures

to make sure that the directions given by it are
strictly followed by the co-operative banks.

(d) The Employees Co-operative Banks should be excluded

from the control of the Banking Regulation Act, as
they are not providing membership or credit
facilities to the general public. The membership
in these banks is restricted to a particular class
of employees only. Their lendings to not satisfy
the norms for lending fixed by the Reserve Bank
 207

because they are formed with limited interests,

namely/the welfare of a particular class of
employees.

5.3.1 Competent management and efficient staff are

vital for the successful working of every co-operative
bank especially when it has to compete with the
commercial banks and private financiers. Of course, it
is true, that co-operative banks have the advantage of
being able to pay higher rates of interest on deposits
and lower rates of interest on advances as compared to
commercial banks. The Management of the co-operative
banks vest in the General body of the members as far as
general policy making is concerned, and in the Board of
Directors for day to day administration through the Chief
Executive and other staff. But, the study reveals a
sorry state of affairs in the composition and working of
these bodies.

5.3.2 _mfl A vigilant and committed

general body of members is a must for giving the proper
direction to the functioning of each bank and to review
and control the performance. but it is found that the
participation of members in general body meeting is
generally very poor and very often personal influence
has to be exercised by the Chief Executives to constitute
the quorum at such meetings. Monetary and non monetary
 208

incentives for attending general body meetings have

produced better attendance. Properly educating the
members on the importance of the General body could
solve this problem and improve relations with customers.
The board of Directors has the primary function of
directing the working of the bank. They have to see
that funds are mobilised and properly utilised and that
concerned laws are followed and also that the day to day
work is carried on smoothly and efficiently.

5.3.3 The election of members from the general body

very often takes place on the basis of politics which is
_found to have a negative effect on deposit mobilisation.
The State Co-operative Bank, all District Co-operative
Banks and 53% of Primary Banks have government nominees
on the board. The majority of the Directors (70%) had
education upto S.S.L.C. In a board of directors, better
qualified members could have done a better job. The
directors do not have any qualifications in banking - nor
are workshops or training courses available for training
and educating them. All these have affected the working
of these banks adversely. Very often.noard_Meetings
could not be held in time for want of quorum. Because of
this, lending decisions are delayed causing discontent
in members. Xxx; This state of affairs could be remedied
by laying down stipulations regarding minimum educational
qualifications, minimum period of continuous and active
 209

co-operation in the functioning of the bank and also by

conducting training programmes, seminars and also study
tours to efficient banks. These could be organised by
the Apex sank under the directions of the state
Co-operative Union or the National Federation of Urban
Banks.

5.3.4 The Chief Executive who is the key factor for

the efficient working of_the bank is very often handicapped
by the absence of delegation of power to him by the board
of Directors. For the speedy disposal of applications for
loans, the Chief Executive may be given the authority to
sanction advances up to a limit. There was no uniformity
in the staffing pattern. In the banks studied, the number
of staff ranged between 8 and 102 and the ratio of officers,
clerical staff and non clerical staff showed wide variations.
Vacancies are filled only after approval by the
Co-operative Department and it is found that delay is
caused in appointing staff to fill vacancies. The method
of selection of staff is found to be different and unsound
in some banks. desides, it is found that many oanks are
under staffed mainly due to the fact that the number of
staff for each bank has been fixed on a classification
based on working capital. In addition, vacancies,
resulting from the upgrading of banks from one class to
another, were pending for approval by Co—operative Department.
 210

5.3.5 The perquisites and fringe benefits in Primary

Banks are based on the classification based on working
capital. The classification of Primary Banks on the
basis of working capital alone and the listing all
banks with more than Rs. 50 lakhs working capital under
Class I exhibits the lack of imagination on the part of
the Co—operative Department. None of the respondents
was satisfied with the working of the Department in the
state, because of the delay and red—tapism in getting
things done through the Department.

5.3.6 In connection with the removal of the manifold

problems connected with the operational, managerial and
financial efficiency, the following recommendations are
made :

(a) The members of Boards of Directors should have

prescribed minimum educational qualifications ie.,
at least the ability to read and write.
(b) To ensure that only those having continued association
with the bank alone are present in the board, stipulations
regarding minimum period of membership and continuous
active co-operation in the functioning of the bank
are to be fixed.
 211

(c) The nominees sent to the Board by the Government

should be experts in the field.
(d) To improve the working of the banks, there should
be continuous programmes like work shops, seminars,
training and refresher courses etc. for the staff
and members Qf the board at periodical intervals,
on a compulsory basis.

(e) The Primary Co-operative danks coming under the

oanking Regulation Act should be given a common
cadre in the state level and a seperate department
be formed under the State Co-operative Bank.

(f) The staff requirements of Primary banks should be

met by this department and it should implement
schemes of incentives, merit rating and job
evaluation of the staff.

(g) The classifications of Primary Banks should not be

based on working capital alone as is done now. A
more realistic classification should be followed
considering the number and volume of deposits and
advances accounts, Audit classification, viability,
dividend declared and working capital.

(h) The monetary and non monetary benefits to employees

should be based on the above classification and
uniformity should be maintained by banks falling
in the same class.
 212

5.4.1 .All Co-operative Societies are characterised

by open membership. All individuals residing or employed
in the jurisdiction of a Primary Co-operative Bank are
eligible for membership unless otherwise disqualified.
Similarly, all Primary Co-operative Societies functioning
in a district are eligible for membership in the District
Co-operative Bank of that district. but the study has
revealed that the underlining principle of open or
universal membership is yet unknown to many co-operative
banks in the state. It is doubtless that, this is a clear
violation of the principles of co-operation. The public
has to be properly educated about the role, importance and
functions of co-operative banks. Similarly, the
Co—operative Department of the Government should be more
vigilant in this respect. when a complaint in this respect
is received, the Joint Registrar or Registrar of
Co-operative Societies should conduct immediate enquiries.
The guilty should be reasonably punished and the complaint
should be positively settled.
5.5.1 A salient fea%ure,bf Primary Co-operative Banks
is that unlike other/societies or banks, they are controlled
by the banking Regulation Act and the Co-operative
Societies Act. Their transactions are expected to comply
with the principles of co—operation and also achieve
commercial efficiency. This calls for effective and
 213

prompt supervision by the Department. But the Department,

at present, does not have expert personnel suited to the
needs of the different types of societies. However, for
the development of Primary Banks coming under the
Banking Regulation Act, it is suggested that a seperate
division in the Department be set up.
5.5.2; The conclusions arrived at and the recommendations
made are the result of detailed study of the three
components of the Co—operative banking system in herala
and their interaacting relationships in the background
of the dual control exercised on the system by the state
government and the Reserve Bank of India. The study has
proved all the hypotheses. The recommendations are, in
my thinking, realistic and if they are implemented, the
Co-operative Banking System in Kerala will be able to
realise its enlarged role and achieve commercial
efficiency within the ambit of the philosophy of
Co-operation and thereby make its role significant in
the economic development of the state and also in furthering
the practice of Co-operation, fully entrenched in the
basic principle of Co—operationfi0N£ FOR ALL AND ALL FOR
ONE", which. 15 the ‘Sine qua non‘ of national solidarity.
0' E08: F‘Ji{PhER B.i“3Si*3AECii

5,6,1 Owing to limitations on time and other resources,

this study had to be restricted to the general conditions
 214

prevailing in the Co-operative Banking system in the

state, The study has not gone into the details of
working of each bank in such great detail as to arrive
at individual diagnosis of its performance. Nor has this
study attempted any prognosis at the unit level. No
comparison has been drawn with the working of the
Co-operative Banking system in other states nor with
the working of the commercial banking system. These are
some of the lines_on which further research could be
conducted so that a fuller understanding of the detailed
working of Co-operative banks could be arrived at, the
defects detected and remedies recommended so that
Co-operative banking can be put on a high pedestal from
where it could play a more significant role in the
economic development of the country as a whole.
&
&&&
&&&&&

&§&
 215

APPENDIX — _:_:_

LIST OF PRIMARY CO~OPERATIVE BANK§

1. Ananthasayanam Co—operative Bank Ltd.,

Trivandrum - 695 001
2. Karamana Co-operative Bank Ltd.,
Trivandrum - 695 002
Neyyattinkara Co-operative Bank Ltd.,
Neyyattinkara, Trivandrum
Trivandrum Co-operative Urban Bank Ltd.,
Trivandrum ~ 695 001

Nedumangad Co-operative Urban Bank Ltd.,

Nedumangad, Trivandrum
6. Quilon Co-operative Urban Bank Ltd.,
Quilon — 1
7. Quilon Taluk Coastal Development Co-operative Bank Ltd.,
Quilon - 691 013
8. Adoor Co-operative Urban Bank Ltd.,
Adoor - 691 S23
9. Karunagappally Taluk Urban Co-operative Bank Ltd.,
Pin - 690 518
10. Kundara Co-operative Urban Bank Ltd.,
Kundara, Quilon
11. Kottarakkara Co-operative Urban Bank Ltd.,
.P1n — 691 506

12. Alleppey Urban Conoperative Bank Ltd.,

Alleppey
13. Thiruvalla East Co-operative Bank Ltd.,
Pin - 689 542
14. Changanacherry Co—operative Bank Ltd.,
Changanacherry, Kottayam
15. Kaduthuruthy Urban Co-operative Bank Ltd.,
Kaduthuruthu
16. Kottayam Co-operative Bank Ltd.,
Kottayam - 686 001
17. Meenachil Co-operative Bank Ltd.,
Pin — 686 575
18. Vaikom Co-operative Bank Ltd., Vaikom,
Pin — 686 141
19. Alwaye Urban Co—operative Bank Ltd.,
Alwaye

20. Mattancherry Sarvajanik Co—operative Bank Ltd.,

Cochin - 682 002
21. Mattancherry Mahajanik Co-operative Bank Ltd..
Cochin - 682 002
22. Muvattupuzha Urban Co-operative Bank Ltd.,
Muvattupuzha - 686 661
23. People's Urban Co-operative Bank Ltd.,
Tripunithura - 682 301
24. Thodupuzha Co-operative Bank Ltd.,
Thodupuzha P.O.
25. Kattappana Urban Co-operative Bank Ltd.,
Kattappana p.o.
26. Cranganore Town Co-operative Bank Ltd.,
Kodungallur, Pin - 680 664
27. Guruvayur Co-operative Urban Bank Ltd.,
Guruvayur
 217

28. Cherpalcherry Co-operative Urban Bank Ltd.,

Cherpalcherry, Palghat - 679 503
29. Trichur Urban Co-operative Bank Ltd.,
Trichur — 1
30. Koduvayur Co-operative Urban Bank Ltd.,
Koduvayur, Palgh at
31. Nemmara Co-operative Ufban Bank Ltd.,
Nemara, Pin — 678 508
32. Ottappalam Co-operative Urban Bank Ltd.,
Ottappalam - 1, Palghat 7
33. Palghat Co-operative Urban Bank Ltd.,
Palghat - 678 001
34. Shornur Co~operative Urban Bank Ltd.,
Shornur, Pin - 679 121
35. Kottakkal Co-operative Urban Bank Ltd.,
Kottakkal, Pin - 676 S03
36. Manjeri Co-operative Urban Bank Ltd.,
Manjeri, Pin - 676 121
37. Nilambur Co~operative Urban Bank Ltd.,
Nilembur, Pin - 679 329
38. Perinthalmanna Co-operative Urban Bank Ltd.,
Perinthalmanna, Pin - 679 322
39. Tirur Urban Co-operative Bank Ltd.,
Tirur, Pin ~ 676 101
40. Badagara Co-operative Urban Bank Ltd.,
Badagara, Pin — 673 101
41. Balussery Co-operative Urban Bank Ltd.,
Balussery, Pin - 673 612
 EH8

42. Calicut Co-operative Urban Bank Ltd.,

Kozhikode - 2
43. Meppayur Co-operative Urban Bank Ltd.,
Meppayur, Pin - 673 524
44. Payyoli Co-operative Urban Bank Ltd.,
Meladi, Pin - 673 522
45. Cannanore Co-operative Urban Bank Ltd.,
Cannanore - 1
46. Tellicherry Co-operative Urban Bank Ltd..
Tellicherry
47. Kasargod Co—operative Town Bank Ltd.,
Kasargod, Pin - 670 121
48. Payyanur Co—operative Town Bank Ltd.,
Payyanur, Pin — 670 307
49. L.I.C. of India Staff Co-operative Bank Ltd.,
Trivandrum - 695 004
50. Adhyapaka Co—operative Bank Ltd., Puthuppally,
Pin - 686 011
51. .TheLKottayam Govt. Employees Co-operative Bank Ltd.,
Kottayam - 1
 219

APPENDIX - _I__;

LIST OF DISTRICT CO-OPERATIVE BANKS

1. Alleppey District Co~operative Bank Ltd., Alleppey

Trivandrum District Co-operative Bank Ltd.,
Trivandrum

Quilon District Co-operative Bank Ltd., Quilon

Kottayam District Co—operative Bank Ltd.,
Kottayam

Idukki District Co-operative Bank Ltd.,

Idukki
Ernakulam.District Co-operative Bank Ltd.,
Ernakulam

Trichur District Co-operative Bank Ltd.,

Trichur
Palghat Co-operative Central Bank Ltd.,
Palghat
Malappuram District Co-operative Bank Ltd.,
Mal appuram

10. Malabar Co—operative Central Bank Ltd.,

Calicut
11. Cannanore District Co-operative Bank Ltd.,
Cannanore

12. Wynad District Co—operative Bank Ltd.,

wynad
 2K)

APPENDIX ­ III
INTERVIEW SCHEDULE ON PRIMARY CO—OPERATIVE BANKS

1. Name and address of the

registered office of on

the bank >*<>-()-<

a) Register Number, class

and date of Registra­
tion
b) If licenced, date of n no

licence >-<>-< )-<>-<>-<

c) Audit classification
a) Paid—up Capital as on 'A' Class ‘B’ Class ‘C’ Class
30.6.1984

b) Working capital as on on

30.6.1984 )—<)"<

4. a) Is there any unsatis­ I

fied demand for shares?I:
If yes, reasons I
thereto I

b) Number of applications I
pending, i.e., appli­ I
cations to which no I:
allotment has been I
made as on 30.6.1984 I

Number of branches, if I
any, location and distance I:
from the registered office I
Area of operation sufficient/insufficient
a) Number of staff within 1:
the jurisdiction I

b) Number of staff out­ I:

side the jurisdiction I
 221

Number
on theofBoard
Directors II: Elected Nominated Total

8. Their educational I :
background I
Below 8 S on
S.S.L.C. L C.Graduate Post Others
. . Graduate
Their political II :
background
Political Activepolitics
Leaders workers Interested in Dis- Against
but interested Politics
not active ‘__
10.
held in I
a) Number Of meetings I 1983—'84 1982—'83 1981-'82 i980-'81

b) Periodicity of con— I :
vening board meeting I
11. were there instances of I
postponement of board I :
meetings due to lack of I
quorum. If yes, details I
12. Nature of relationship I
between staff and I :
management I
a) Any conflicts during I :
the last four years I
b) Nature of conflicts
c) Out—come of conflicts
d) was there any retrench—I
ment of employees du- I
ring the last four I
years and if yes, rea- I
sons thereto I
 222

13. Nature of relationship

between shareholders 00

and board of directors

a) ‘No confidence‘ motion
passed during the
last four years
b) Stormy sessions du­
ring shareholders 00 00

meetings >-<>-¢>—< >--<>-<>-c >-<3-<>-<

c) Any other kind of

conflict
d) Are all loan applica­
tions accepted in 00

general course ? If
not, reasons thereto >-<>-<2--C)--1' >--<>-<

e) Time required for

payment of loans
once they are passed
for payment >—<>*-()-<)-‘<

1. in principle 9. II

2. in practice
3. Reasons for devia—I:
tions, if any I
f) Do directors parti­
cipate in deposit
mobilisation >-( >-<)*<

14. Details of Banking Staff 00 It Grade Number Scale

15. Details of perks and

fringe benefits availa­ O0

ble to the staff >-<)-<)-(

16. Other benefits

a) Monetary
b) Non-monetary
c) Retirement benefits 09
17. Velocity of staff­
turnover during the
last four years
18. Development facilities IO

available to the staff >—< >—<

a) Basis of promotion
b) Nature of efficiency
evaluation, if any
c) If yes, effects of
such evaluation du­
ring last four years
19. Nature and process of no no

appointment >-<>~< >-<)—<f>-< >-< >—<

a) Details of authority
conducting the test
b) Name of authority
which conducted the
most recent test
c) Members of the
interview board
d) Any preference for
local hands/highly
qualified hands
e) Whether rank—lists
are published co to to O0 90

immediately >-< >-<'>-4 >-< >-<5)-< >-<.>*< >-<I)-<I>-< >-<?>-<

f) Are lists allowed to I

lapse and then fresh I:
appointments made I

20. Number of shareholders as on: I ix! Class OI3 I Class l(: I Class
30.6.1984
30.6.1983
30.6.1982 00

30.6.1981 0|
 224

21. Dividends declared I 1983-'84 1982—'83 1981-'82 1980-'81

and paid during the I:
last four years I

22. Strength at annual I 1983-'84 1982-'83 1981-'82 1980-'81

general meetings for X:
four years I

23. Incentive offered to X

shareholders to X:
attend meetings I

a) Monetary
b) Non-monetary

24. Borrowings from other I 1983-'84 1982-'83 1981-'82 1980-'81

financial agencies I
and government (spe­ I:
cify the source and I

X: '
nature of borrowings) I

25. Other sources of I: 1983-'84 1982-'83 1981-'82 1980-'81

borrowed funds I

25. Amounts of bad—debts I 1983-'84 1982-'83 1981—'82 1980-'81

written off for four
years I

27. Surplus or deficiency I 1983-'84 1982-'83 1981-'82 1980-'81

of funds during the X:
four years I

28. Deposits with other I:

banks I

a) Statutory I:
requirement I

b) Actual Deposits
c) Reasons for de­ I:
viations if any I
29. Secondary services
available to to

account holders >-<7-<)-<

30. New schemesintroduced 1

during the last II:
four years
31. Amenities to custo- I
mers like-chairs, I:
fans drinking water I
etc.
32.
the Bank I
Special features of I:

Shareholders Non-shareholder Depositors Borrowers

33. Office bearer's/

Board member's
personal opinion
regarding the prob­
'lems which the bank
has to face and O0

remedial measures
for further expan­
sion and develop~
ment >-¢>-(>-<>-<>-<>-<‘>-<>-<)-<>-<

N.B. : Kindly supply one copy each of Annual

Account and Reports for four years
 mmnpww Hwvm om

"|'|"'::"u

So
u». Umnmwwm om Umvomun rooocswm mm 05 «Sm Hwmd mmdm om mmn: mwsmzowmw «man mm won Hmoonmm .

Z0. booocdn Hmmwu.m» pom» .mu pomp .m~ Home .mu

nugg‘:':"uuu'::u"""I""|"""gI‘I--.
zo. baocsd zo. waocad zo. baocsd zo. vaocud
Ell:
iE.ll]Ilt!t"IIIIIE
1"’:1!:'I!l':liI'I'|l"i|'-'lIO.O‘.'t']'}tI":|
 zo.

rows

Bmsw

mmwmwl

mmnwmw awvm om emfism om

1"":

%%MfiI Eda om

.. .. .. Ea” as

% rpawn H5nmHL

Homunmn

baocsn zo.

pommnmu

mm»

mm. Uwdmwwm om bomsm mam wmdmsomm mm on Hmmd Qmnm om mwo: mwnmsowmw Mmwn. mm vmn Hmoowam »

Hompumm pwmoum»

>S0c:d zoo baocad zo. waofifi

 223

APPENDIX - _I_y_

INTERVIEW SCHEDULE ON DISTRICT CO~OPERATIVE BANKS

1. Name, Number and Address I CC

of the Bank >-4

2. Date of licence (Banking)

3. Audit Classification
4. Number of Branches

5. Members of the Staff Grade Number Grand

Total

6. working Capital (30.6.1984)

7. Number of applications for I

30.6.1984 I
membership pending as on I :

8. Number of members expelled I 00

during the last 4 years X

9. Total Number of members :
30.6.'84 30.6.'83 30.6.'82 30.6.'81
Class ‘A’
Class 'B'

10. Number of Directors

 229

11. Their education C.

background )-<)-(

g?é?:.C. S.S.L.C. Graduate P.G. Others

12. Their political OI

background >'<>-(

Political Active Against

leaders workers Independent politics

13. a) Period of conve­

ning Board Meet­ to

ing >‘<)-C)-(

b) No. of meetings IO

held in >-<>-<'

1983-'84 1982-'83 1981-'82 1980-'81

14. were there instances

of postponement of
Board Meetings due to O0

lack of quorum. If
yes, details >-<)-<)--<)—<>-<

15. Nature of relation­

Ship between staff 00

and management )-<>*<>-<

a) Any conflicts dur— X

years I
ing the last four II :
 2%

b) Nature of conflicts :
c) Outcome of conflicts 00

d) was there any retren—I

chment of employees I
during the last I,
four years and if I’
yes, reasons thereto I
16. Nature of relationship I
between shareholders and I:
board of directors I
a) No confidence motion I
passed during the I:
last four years I
b) Stormy sessions du- I
ring shareholders I:
meetings I
C)
conflict I
Any other kind of I:

d) Are all loan appli— I

cations accepted in I:
general course ? If I
not, reasons thereto I
e) Time required for I
payment of loans I:
once they are passed I
for payment ‘
1) in principle :
2) in practice
3) Reasons for de- I
viations, if any I
f) Do directors, parti— I
cipate in deposit I1:
mobilisation
 231

17. Details of perks &

fringe benefits availa­
ble to the staff >-(>-<)—<

18. other benefits

a) Monetary
b) Non-monetary
c) Retirement benefits
19. Velocity of staff turnoverl
during the last 4 years I
20. Development facilities &
merit evaluation, if any
21. Nature and process of CO

appointment
a) Details of authority
conducting the test
b) Name of authority who
conducted the most
recent test >-<>-<>-< >-<)-< >--<)--< >-<)—<

C) Members of the inter­

view board
d) Any preference for
local hands/highly
qualified hands/
deposit canvassing
etc.
e) Whether rank—lists
are published CO

imediately
f) Are lists allowed to
lapse and then make
fresh appointments #()--<>—( >-<>-<>-< >-<>-<)-()-<>-<
 232

22. Details of dividend :I

declared and paid in I
the previous 4 years I
in the descending I
order I

23. Strength in Annual I O

C 1983-'84 1982-'83 1982-'81 1980-'81
General Meeting I

24. Incentives offered

to shareholders to
attend meetings
25. Details of loans
available )-<>-( )-<>-<)-<

a) Members
b) Non~Members
26. Details of periodi­ I
cal training and con—I:
ferences held, if I
anY I

27. Library of Co-opera- I:

tive Literature
28. Other remarks if any,I
by the Chief Execu­
tive/Board of
Directors, not co­
vered by the above
questions, pertain­
ing to the working
of the bank )-<>-<>-<>-<>-C)‘-(>"(

N.B. : Kindly supply one copy each of the Annual Accounts

and Reports for four years ending 30.6.1984.
 233

APPENDIX - jg

INTERVIEW SCHEDULE ON KERALA STATE CO-OPERATIVE BANK LTD.

1. Name,Number and Address I:

of the Bank I
2. Date of licence
(Banking) I I:
3. Audit Classification :
4. Number of Branches :
5. Members of the Staff : Grade Number ii???

6. Working Capital I:
(30.6.1984) I
7. Total Number of I:
members I
30.6.'84 30.6.‘83 30.6.'82 30.6.'81
Class ‘A’
Class ‘B’

.8. Number of Directors :

9. Their education I:
background I
Below
S S L.C. S.S.L.C. Graduate P.G. Others
 25b

10. background
Their political II 00

Political Active
leaders workers Against
Independent nolitics

11. a) Period of conve­ 00

ning Board Meeting >-<>—<

b) No. of meetings CO

held in 3'4.)--<

1983—'84 1982-'83 1981-'82 1980-'81

12. were there instances

of postponement of
Board Meetings due oo

to lack of quorum.
If yes, details >—(>'-<>'-(>-(>-<

13. Nature of relationship

between staff and
management
a) Any conflicts du­
ring the last four I!

years >-<>-<>--( >-<>—<>—<

b) Nature of conflicts :
C) Outcome of conflicts :
d) was there any re­
trenchment-of
employees during co

the last four

years and if yes,
reasons thereto >-<>-<>-<>-<)-<)—(
 235

14; Nature of relationships I

between shareholders I:
and board of directors I
a) No confidence motion I
passed during the
last four years >--<>-<

b) Stormy sessions du­

ring shareholders 09

meetings )-<>-()-<

c) Any other kind of 09

conflict >-<>-<

d) Are all loan appli­

cations accepted in
general course ? 00

If not, reasons
thereto )-<)--<>-<:--:>--<

e) Time required for

payment of loans
once they are passed
for payment >-<>-<>-<>-<

1) in principle 00 0'

2) in practice
3) Reasons for
deviations, if to

any >-<)--C)-<

f) Do directors, partiv
cipate in deposit 90

mobilisation >-<>--<)—<

.15. Details of perks & I

fringe benefits avai1a— I:
ble to the staff I
 236

16. Other benefits

a) Monetary
b) Nonnmonetary
c) Retirement benefits

1?. turnover
Velocityduring
of staff I
the I:
last 4 years I
18. Developent facilities & I:
merit evaluation, if any I
19. Nature and process of I:
appointment I
a) Details of authority I:
conducting the test I
b) Name of authority I
who conducted the I:
most recent test I
c) Members of the I:
interview board I
d) Any preference for I

etc. I
local hands/highly I:
qualified hands/ I
deposit canvassing I

e) whether rank—lists
are published II:
imediately
f) Are lists allowed to I
lapse and then make I:
fresh appointments I
 237

20. Details of dividend I

declared and paid in the 1:
previous 4 years in the I
descending order I
21. Strength in Annual I:1983-'83 1982-'83 1982-'81 198oa'81
General Meeting I
22. Incentives offered to
shareholders to attend oo

meetings )-<>--()-c

23. Details of loans availa­ no

ble >--<)-<

a) Members
b) Non-Members

24. Details of periodical

training and conferences O0

held, if any >--<>—<>-<

25. Library of Co-operative to

Literature >-t)--<

26. Other remarks if any,

by the Chief Executive­
Board of Directors,
not covered by the IO

above questions, per­

taining to the working
of the bank )-()-<’)-<>—(>'-C)-<>-<

N.B. : Kindly supply one copy each of the Annual

Accounts and Reports for feur years
ending 30.6.1984.
 SELECTED BIBLIOGRAPHY

BOOKS

1. Auburn. H.w. - Comparative Banking (in 25 centres) ­

Water Low and sons Ltd. Dun stable, England, 1966

Balan. T.S. - Co—operation Principles and Practice ­

Published by the author I Trichur, 1982

Banerji. J. - Co-operative Movement in India —

Navana Printing works (P) Ltd. - Calcutta, 1961
4. Beckhart Benjamin Haggot — Banking_§ystems — The
Times of India Press, Bombay, 1970

5. Bedi. R.D. - Theory, History & Practice of Co­

operation - International Publishing House ­
Merut 24, 1962

Bhar. B.K. — Cost Accounting Methods and Problems ­

Academic Publishers, Calcutta, 1979

Davar. S.R. - Law and Practice of Banking ~

Progressive Corporation (P) Ltd. — Bombay, 1976

Desai Mulalik. V.R. ~ Banking Development in India ­

Ravat Publications - Jaipur, 1978
 239

9. Dewett Kewal Krishna - Money and Banking ­

S. Chand & CO. - Delhi, 1956

10. Ghosh. D.N. - Banking Policy In India, An

Evaluation - Allied Publishers (P) Ltd. —
Bombay, 1979

11. Goal. S.L. and Goel. B.B. - PrinciplesL¥Problems

and Prospects of Co-ogerative Administration ­
Sterling Publishers (P) Ltd. - New Delhi, 1970
12. Hagan. K.S. and Blythe. L.N. - Banking In India ­
Macdonald and Evans - Estover, Plymouth
PL6 7P2, 1979

13. Hajela. T.N. - Principles, Problems and Practice of

Co-operation - Shiva Lal Agarwala & Co.
(Educational Publishers) - Agra 3, 1979
14. Hough Eleanor. M. - The Co-operative Movement In
India (Revised and enlarged by Shri K. Madhava Das)­
Oxford University Press ~ Bombay, 1959

15. Jain. J.R. - Banking Law & Practice - Kalyani

Publishers - New Delhi, 1978
16. Justin Navin Chandra - Indian Bankigg - Ashish
Publishing House - New Delhi, 1978

17. Karkal Gopal ~ Perspectives In Indian Banking ­

Popular Prakashan — Bombay, 1977

18. Kulkarni. K.R. - ibeory and Practice of C93

operation In India and Aproad_e Vol II_­
V.V. Bapat Co—operators Book - Depot —
Bombay, 1959

19. Menon. C.R.B. - .A Rural Cgeqgg Scheme for India ­

Orient Longmans Ltd. - Calcutta, 1961

20. Nakkiran. S. - Co—oggrative Banking In India —

Rainbow Publieations - Coimbatore, 1980

21. Panandikar. S.G. — Banking In India - Orient

LongMans - Bombay, 1959

22. Panikkar. K.K. - Banking Theory and Systems ­

S. Chand and Company Ltd. - New Delhi, 1982

23. Radhaswami. M. and Vasudevan. S.V. — A Test Book

Banking — S. Chand and Company Ltd. ­
New Delhi, 1980

24. Rangarajan. C. - Inngvations in Banking - Oxford"

and I B H Publishing Company_— Bombay, 1982
25. Sayers. R.S. - Modern Banking — Oxford University
Press - London, 1967

26. Sekhar. K.C. — Banking Theory and Practice - Vikas

Publishing House (P) Ltd. — New Delhi, 1979

27. Srivastava. R.M. - Manageggnt of Banks ~ Pragati

Prakasan - Meerut, 1979

28. srivastava. G.P. - graditional forms of Co-operations

In India - Indian Co—operative Union ­
New Delhi, 1962

29. Tannan. M.L. - Banking Law and Practice In India ­

Thacker and Co. Ltd. — Bombay, 1965

30. Varshney - Banking Law and Practice — Sultan Chand

and Sons - New Delhi, 1978

Reports Studies and Circulars :

31. Back-ground Matedals for the Regional Seminar of

Qirectors and Chief Executives of Primary
jggban) Co-operative Banks and District Co­
operative Banks - Kerala State Co—operative
Bank Ltd. - Trivandrum, October 1983

32. Banks Since Nationalisation - Birla Institute of

Scientific Research (Economic Research Division) —
Allied Publishers (P) Ltd. - Bombay, 1981
 2h2

33. Circular No : UBD (T)_No : INSP. /K 025 (A) - '86

dated 14.3.'86 - Reserve Bank of India - Trivandrum

34. Degelopmental Role of State and Central Co-operative

Banks - Reserve Bank of India ~ Bombay - 1973

35. Directors Report — National Federation of Urban Co­

operative Banks and Credit Societies Ltd.,
1982-'83

36. Manual on Advances by Co-operative Banks - Reserve

Bank of India - Bombay, 1977

37. Manual for Urban Co-operative Banks - Reserve Bank

of India — Bombay, 1984

38. flgtual Arrangement Scheme for Co-operative Banks In

Kerala - The Kerala State Co-operative Bank Ltd. ­
Trivandrum

39. Proceedings of the International Seminar on Banking

and Development — Held at Bombay on 9th Feb 1970 —
Reserve Bank of India - Bombay, 1970

40. Report of the second Meeting of the Standing Advisory

Committee for Urban Co-operative Banks - Reserve
Bank of India — Bombay, 1984

41. Report of the Committee (Headed by Sgi: K. Madhaya_Das)

On Urban Co-operative Banks ~ Reserve Bank of India­
Bombayp
 2&3

42. Regort on Trend and Progress of Banking In India ­

Reserve Bank of India - Bombay, 1984

43. Statistical Information - State Co-operative Union ­

Trivandrum — (various issues)

44. Studies in Agricultural Credit - Reserve Bank of

India - Bombay, 1970

45. "Urban Co—operative Banks - New Lending Policy_§

Problems" Dissertation submitted by
Sri. E.P. Sreekumar in the Regional Seminar of
Urban Banks held on 20.7.1986 at Tripunithura
(Translation)

Journals, Periodicals and Others :

46. A Brief Notehgn the working of the Kerala_§tate Co:

Qperative_Bank Ltd. — Published by the Bank ­
Trivandrum, 1983

47. Co—operative Bank's Diary — John D‘ Silva ­

Bombay, 1985-'86

48. Co—operative Guidg_1986 ~ Kerala State Co-operative

Inspectors and Auditors Association — Trivandrum

49. Egg Co-operator - (various issues) - State Co­

operative Union - Trivandrum
 21:1:

50. Diamond Jubilee Souvenir — Cranganore Town Co­

operative Bank Ltd. - Cranganore, 1981

51. Golden Jubilee souvenir of the Cranganore Tog;

Q9-operative Bank Ltd. - Cranganore, 1970
(Translation)

52. Malayala Manorama Daily - Malayala Manorama

Company Ltd. - Kottayam (various issues)
(Translation)

53. Silver Jubilee Souvenir - Mattancherry Sarvajanik

Co-operative Bank Ltd., 1978 (Translation)

54. souvenir of the Third Conference - National Federation

of Urban Co-operative Banks and Credit Societies ­
April, 1984

55. Souvenir of the Conference of the National Federation

9; Urban Co—operative Banks and Credit Societies ­
National Federation of Urban Co-operative Banks
and Credit Societies Ltd. - New Delhi, April 1984

56. Statistical Statements Relating to the Co—operative

Movement in India 1974-'75 - Reserve Bank of
India — Bombay

57. Statistical Information — State Co—operative Union ­

Trivandrum - (various issued)
58. Studies in Agricultural Credit — Reserve Bank of India ~
Bombay, 1970
é’a373°7_
**r*xxww* *